United States
Environmental Protection
Agency
Office of Water
Regulations and Standards
Washington, DC 20460
EPA 440/85-024
June 1985
Water
Economic Impact Analysis
of Effiuent Limitations
and Standards for the
Notice of Data Availability
for the Organic Chemicals,
Plastics and Synthetic
Fibers Industry
QUANTITY
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PREFACE
This document is a contractor's study prepared for the Office of
Water Regulations and Standards of the Environmental Protection Agency
(EPA). The purpose of the study is to analyze the economic impact which
could result from the application of effluent standards and limitations
issued under Sections 301, 304, 306 and 307 of the Clean Water Act to
the Organic Chemicals, Plastics and Synthetic Fibers Industry.
The study supplements the technical studies supporting the issuance
of these regulations. The technical studies survey existing and potential
waste treatment control methods and technologies within particular
industrial source categories and supports certain standards and limitations
based upon an analysis of the feasibility of these standards in accordance
with the requirements of the Clean Water Act. Presented in the administrative
record are the investment and operating costs associated with various
control and treatment technologies. The attached document supplements
this analysis by estimating the broader economic effects which might
result from the application of various control methods and technologies.
This study investigates the impact on product price increases, the
continued viability of affected plants, employment, and foreign trade.
This study has been prepared with the supervision and review of the
Office of Water Regulations and Standards of EPA. This report was
submitted in fulfillment of EPA Contract Nos. 68-01-6426 and 68-01-6774.
The analysis was completed in June 1984.
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TABLE OF CONTENTS
Section 1: Summary
1.1 Introduction 1-1
1.2 Industry Coverage 1-1
1.3 Economic Impact Assessment Methodology 1-1
1.4 Industry Profile 1-2
1.5 Impact Analysis Results • 1-2
1.5.1 Plant Impacts 1-2
1.5.2 Firm Impacts 1-5
1.5.3 Community Impacts 1-5
1.5.4 Balance of Trade Impacts 1-5
1.5.5 Small Business Impacts 1-6
1.6 Limits of Analysis 1-6
1.7 Sensitivity Analysis 1-6
Section 2: Industry Profile
2.1 Overview 2-1
2.1.1 Industry Definition 2-1
2.2 Product Characteristics 2-2
2.2.1 Basic and Intermediate Chemicals 2-2
2.2.2 Finished Chemicals 2-6
2.3 Market Structure 2-10
2.3.1 Industry Concentration 2-11
2.3.2 Integration and Diversification 2-12
2.3.3 Product Differentiation and Competition 2-12
2.3.4 Product Substitution, Research and Development,
Demand Elasticity and Profitability 2-15
2.3.5 Barriers to Entry • 2-15
2.4 Industry Performance and the Business Cycle .....2-16
2.4.1 Historical Production and Comparison with
Total Manufacturing 2-16
2.4.2 Industry Performance Trends 2-16
2.4.3 Price, Capacity Utilization and Capital
Spending Trends.. ....2-18
2.5 Employment and Productivity 2-21
2.6 Foreign Trade • 2-21
2.7 Financial Profile 2-27
2.8 Firm and Plant Characteristics 2-31
2.8.1 SIC Groups 2-34
2.8.2 Single Versus Multi-Plant' Firms 2-34
2.8.3 Production Quantity and Value 2-34
2.8.4 Sales Quantity and Value 2-41
2.8 5 Production Costs 2-46
2.8.6 Employment 2-50
2.8.7 Labor Productivity 2-50
2.8.8 Capital Expenditures 2-50
2.8.9 Plant Age 2-50
2.8.10 Discharge Status 2-58
2.8.11 Plant Locations 2-58
2.8.12 Type of Firm Ownership 2-58
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Appendix 2A: Robert Morris Associates Data Used for Calculating
Financial Ratios 2A-1
Section 3: Economic Impact Assessment Methodology
3.1 Introduction 3-1
3.2 Data Sources 3-2
3.2.1 Meta Systems Database 3-2
3.2.2 §308 Survey 3-5
3.2.3 DRI Services 3-5
3.3 Baseline Estimates 3-7
3.3.1 Specifications of the Baseline 3-7
3.3.1.1 Macro Level 3-7
3.3.1.2 Industry Level 3-7
3.3.1.3 Firm Level 3-10
3.3.1.4 Plant Level 3-10
3.3.1.5 Product Level 3-13
3.3.1.6 New Sources 3-13
3.3.2 Profitability 3-16
3.3.3 Liquidity 3-16
3.3.4 Production Costs 3-16
3.3.5 Cost of Capital and Time Horizon 3-16
3.4 Plant Level Impacts 3-17
3.4.1 Profitability 3-18
3.4.2 Liquidity Impacts 3-18
3.4.3 Change in Production Costs 3-19
3.4.4 Closure Analysis ......3-19
3.5 Industry-wide Impacts 3-21
3.6 Firm Level Analysis 3-21
3.6.1 Treatment Capital Cost to Firms'
Annual Investment 3-22
3.6.2 Financial Ratios 3-22
3.6.2.1 Limitations 3-23
3.6.2.2 Recommended Ratios 3-23
3.6.2.3 Industry Comparison 3-24
3.6.2.4 Trend Analysis 3-24
3.7 Product Level Impacts 3-27
3.8 Employment Impacts .3-27
3.9 Community Impacts 3-27
3.10 Balance-of-Trade Impacts 3-29
3.11 Small Business Analysis 3-30
3.12 New Sources 3-30
Appendix 3A: Corporate Database Description 3A-1
Appendix 3B: Summary of S308 Survey Economic Data ....3B-1
Appendix 3C: Replacement Estimates for Missing
§308 Survey Data 3C-1
Appendix 3D: OCPSF Industry Cost of Capital Estimation 3D-1
Appendix 3E: Company Financial Ratios and COMPUSTAT Data Use....3E-'l
Appendix 3F: Model Plant Cost Estimates 3F-1
Appendix 3G: Regression Results - OCPSF Sales as a Function
of Flow 3G-1
Appendix 3H: Impact Measures for NSPS Impact Analysis 3H-1
Section 4: Treatment Options and Costs
4.1 Overview 4-1
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4.2 Statutory Authority 4-1
4.3 Treatment Control Technologies 4-2
4.4 Industry Subcategorization 4-2
4. 5 Regulatory Options • 4-4
4.5.1 BPT Options 4-4
4.5.2 BAT Options 4-6
4.5.3 PSES Options 4-6
4.5.4 NSPS and PSNS Options 4-6
4.6 Consideration of Other Environmental Regulations 4-6
4.6.1 Resource Recovery and Conservation Act (RCRA) 4-6
4.6.2 Comprehensive Environmental Response,
Compensation,and Liability Act (Superfund) 4-8
4.7 Estimation of Treatment Costs 4-8
4.7.1 Treatment Costing 4-8
4.7.2 BPT Costing 4-9
4.7.3 BAT and PSES Costing 4-9
4.7.4 Plants Costed Versus Plants Analyzed 4-13
Section 5: Baseline
5.1 Macroeconomic Baseline 5-1
5.1.1 General Economic Environment 5-1
5.1.2 Industry Specific Demand Factors 5-3
5.1.3 Industry Specific Cost Factors 5-3
5.2 Industry Baseline • 5-5
5.3 Product Group Baseline .5-5
5.3.1 Plastics and Resins Materials (SIC 2821) 5-11
5.3.2 Synthetic Fibers (SIC 2824) 5-17
5.3.3 Miscellaneous End-Use Chemicals and Chemical
Products (SIC 2869-6) 5-17
5.3.3.1 Lubricant Additives ..5-17
5.3.3.2 Fuel Additives 5-17
5.3.3.3 Cellulose Acetate 5-20
5.3.4 Plasticizers (SIC 2869-3) 5-21
5.3.5 Cellulosic Fibers (SIC 2823) 5-21
5.3.6 Dyes (SIC 2865-2) 5-23
5.3.7 Organic Pigments (SIC 2865-3) 5-23
5.3.8 Rubber Processing Chemicals (SIC 2869-3) 5-24
5.3.9 Flavor and Perfume Materials (SIC 2869-3) 5-25
5.3.10 Miscellaneous Cyclic and Acyclic Chemicals
(SIC 2869-7) 5-25
5.3.11 Cyclic Intermediates (SIC 2865-1) 5-32
5.4 Summary of Low Growth Products 5-38
5.5 Firm Baseline. .5-38
5.6 Plant Baseline 5-41
5.7 Foreign Trade Baseline 5-43
5.^7.1 General International Trade Factor Forecasts 5-43
5.*7.2 Product Foreign Trade Forecasts 5-47
5.7.3 Summary of Foreign Trade Sensitive Products.......5-49
5.8 Resource Conservation and Recovery Act (RCRA) 5-53
Section 6: Economic Impact Assessment Results
6.1 Introduction 6-1
6.2 Plant Level Impacts 6-1
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6.2.1 Summary • 6-1
6.2.2 BPT Impacts 6-4
6.2.3 BAT Impacts 6-7
6.2.4 PSES Impacts 6-10
6.3 Firm Level Impacts 6-12
6.3.1 Firm Level Investment Impacts 6-12
6.3.2 Firm Level Financial Ratio Analysis 6-14
6.4 Community Impacts 6-14
6.4.1 Summary 6-14
6.4.2 BPT Impacts 6-14
6.4.3 BAT Impacts 6-14
6.4.4 PSES Impacts 6-16
6.5 Balance of Trade Impacts 6-16
6.5.1 Summary 6-16
6.5.2 Losses to Production 6-17
6.5.3 Percentage Price Increases 6-21
6.6 Small Business Analysis 6-21
6.6.1 Introduction 6-21
6.6.2 Small Business Definition .6-23
6.6.3 Summary of Analysis 6-23
6.7 New Sources Impacts 6-25
6.7.1 Conventional Pollutant Controls 6-25
6.7.2 Priority Pollutant Controls 6-28
Appendix 6A: PSES Option II Impacts 6A-1
Appendix 6B: Impact Results Incorporating All
RCRA Baseline Costs 6B-1
Section 7; Limits of Analysis
7.1 Introduction 7-1
7.2 Methodology Limitations 7-1
7.2.1 1988 Baseline 7-1
7.2.2 Closure Analysis 7-1
7.2.3 Cost Pass-Through 7-2
7.3 Data Limitations and Evaluation ..7-2
7.3.1 Treatment Cost and Sales Data 7-2
7.3.2 Financial Data 7-3
7.3.3 Cost of Capital 7-3
7.3.4 Liquidation Value 7-4
7.3.5 Production Costs 7-4
7.3.6 Production Impact 7-4
7.3.7 Employment Impact 7-4
7.3.8 Balance of Trade Impacts.. « 7-4
Section 8; Sensitivity Analysis
8.1 Introduction 8-1
8.2 Sales Estimates and Treatment Costs 8-1
8.3 Financial Ratios 3-1
8.4 Cash Flow 8-4
8.5 Weighted Average Cost of Capital 8-4
8.6 Conclusions 8-5
Appendix 8A Comparison of Results of EPA Using Robert
Morris Versus Finstat Financial Ratios 8A-1
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LIST OF TABLES
1-1 Summary of Results — Existing Dischargers 1-3
2-1 U.S. Production, Sales and Uses of OCPSF
Products - 1982 2-3
2-2 End-Use of Flavors, Perfumes and Related
Products - 1979 2-7
2-3 Consumption of Plastics by End-Use - 1979 2-9
2-4 Uses of Manmade Cellulosic and Synthetic Fibers - 1982 2-10
2-5 Industry Concentration Ratios 2-11
2-6 Industry Coverage and Specialization Ratios 2-13
2-7 Chemical Industry Market Characteristics 2-13
2-8 Market Classes of OCPSF Product Groups 2-14
2-9 Production Trends by OCPSF Product Group, 1975-1982 2-17
2-10 OCPSF Production and U.S. Economic Trends 2-18
2-11 Profit on Sales Trends 2-19
2-12 Profit on Networth Trends 2-19
2-13 Price Trends by OCPSF Product Group 2-20
2-14 OCPSF Price, Capacity Utilization and Capital
Spending Trends 2-22
2-15 OCPSF Employment Trends 2-23
2-16 OCPSF Employment Productivity Trends 2-23
2-17 OCPSF Import and Export Trends, Value 2-25
2-18 OCPSF Import and Export Trends, As Percent of
Value of Shipments 2-26
2-19 Financial Ratios for Parent Corporations Calculated from
COMPUSTAT Data 2-28
2-20 Financial Ratios for Parent Corporations by SIC Group
by Year 2-29
2-21 Financial Ratios by SIC Groups Using Data From Robert
Morris Associates 2-32
2-22 Comparison of Aggregate §308 Survey Data for the OCPSF
Industry With Other Industry Data 2-33
2-23 Firm and Plant Categorization by OCPSF SIC Group
and Degree of Plant Specialization 2-35
2-24 Breakdown of Multi-Plant and Single-Plant OCPSF
Firms and Comparison With Mean Plant Size 2-36
2-25 Distribution of 1982 Firm Production Quantity
by OCPSF SIC Group 2-37
2-26 Distribution of 1982 Plant Production Quantity
by OCPSF SIC Group 2-38
2-27 Firm 1982 Production Quantities and Values and
Employment by SIC Group .2-39
2-28 Plant 1982 Production and Sales Quantities and
Values by SIC Group 2-40
2-29 Distribution of 1982 Firm Production Value
by OCPSF SIC Group 2-42
2-30 Distribution of 1982 Plant Production Value
by OCPSF SIC Group 2-43
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2-31 Distribution of 1982 Plant Sales Quantity
by OCPSF SIC Group 2-44
2-32 Distribution of 1982 Plant Sales Value
by OCPSF SIC Group 2-45
2-33 Comparison of 1982 Plant Sales to Plant Production 2-46
2-34 Distribution of 1982 Plant Production Costs and Production
Costs to Sales Value Ratio by Major OCPSF SIC Group 2-47
2-35 Plant 1982 Production Costs, Employment and Productivity
by SIC Group 2-48
2-36 Distribution of 1982 Plant OCPSF Production Costs by Major
OCPSF SIC Groups .2-49
2-37 Distribution of 1982 Firm Employment by OCPSF SIC Group......2-51
2-38 Distribution of 1982 Plant Employment by OCPSF SIC Group 2-52
2-39 Distribution of 1982 Plant Productivity by Major
OCPSF SIC Groups .2-53
2-40 Summary of 1982 Plant Labor Productivity 2-54
2-41 Distribution of 1982 Plant Capital Expenditures
by Major SIC Groups 2-55
2-42 Plant Age and 1982 Plant Capital Expenditures
by SIC Group 2-56
2-43 Distribution of Plant Age by Major OCPSF SIC Groups 2-57
2-44 Distribution of Plant Discharge Status by
Major OCPSF SIC Groups 2-59
2-45 Location of OCPSF Plants 2-60
2-46 Type of OCPSF Firm Ownership by SIC Group 2-61
2-47 Firm OCPSF Employment by Type of Ownership 2-62
2-48 Firm OCPSF Production Value by Type of Ownership 2-62
2-A1 Financial Ratios Using Robert Morris Associates Data 2A-2
2-A2 Robert Morris Data 2A-3
3-1 DRI Data Sources and Services Used in the
Economic Impact Analysis 3-6
3-2 Baseline for OCPSF Economic Impact Analysis 3-8
3-3 Values Used in Estimation of 1988 Sales
as a Function of 1982 Sales 3-12
3-4 Results of Correlation Analysis, Sales vs. Ratio
of Profit Before Tax to Sales (RPBTS) 3-14
3-5 Median Values of Selected Baseline Ratios 3-14
3-6 Summary of Financial Ratios .....3-25
3A-1 Financial Statement Items from COMPUSTAT 3A-3
3A-2 Parent Corporation and Direct Owner Counts by
Data Source and by Ownership Status 3A-5
3A-3 Parent Corporation and Direct Owner Average Employment
and Sales by Data Source and by Ownership Status.... 3A-7
3A-4 Numbers of Parent Corporations and Direct Owners
Reporting Firm Production of the Five OCPSF SIC's,
Including Average Sales and Employment of the Firms 3A-8
3A-5 Comparison of Sales and Employment §308 Survey Data
Summed Across Plants Owned by Each Direct Owner to
Sales and Employment Values for Direct Owners ....3A-11
3A-6 Comparisons of Summed §308 Survey Data to Direct
Owners Missing Values for Employment or Sales 3A-12
3B-1 Summary of §308 Survey Economic Data 3B-2
3B-2 Summary of §308 Survey Economic Data for OCPSF Plants 3B-3
3C-1 List of Unit Values for 8-digit SIC Codes 3C-2
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3D-1 Nominal and Real Weighted Average Costs of Capital for
OCPSF Producers 3D-4
4-1 Treatment Control Technologies Available for
Abatement of OCPSF Pollutants 4-3
4-2 BPT Technology Options. 4-5
4-3 BAT Technology Options 4-5
4-4 PSES Technology Options 4-7
4-5 Summary of OCPSF Treatment Costs by
Regulatory Option 4-10
4-6 BPT Costing Targets for Estimating OCPSF
Plant Treatment Costs. 4-11
4-7 BPT Effluent Limitation Averages and Options
by OCPSF Subcategory 4-12
4-8 OCPSF Plant Count Comparison: Those Covered
by Regulations, Those incurring Costs, and
Those Included in the Economic Impact Analysis 4-14
5-1 Macroeconomic Baseline 5-2
5-2 Growth of OCPSF Demand Factors, 1982 to 1988 5-4
5-3 Changes in OCPSF Prices and Input Costs 5-6
5-4 Baseline Interest Rates ..5-6
5-5 Growth of Chemical Industry Production and End-Use Indices....5-7
5-6 OCPSF Industry Growth Indicators 5-8
5-7 Summary of 1982-1988 Outlook for OCPSF Product Groups 5-10
5-8 Plastics and Resin Materials Baseline 5-12
5-9 Price, Production and Value of Production by Product
for Plastics and Resins (SIC 2821) and Synthetic
Fibers (SIC 2824) 5-13
5-10 Poor Growth Products in the Plastics and
Resin Materials Group 5-14
5-11 Production, Capacity and Capacity Utilization by
Chemical for Plastics and Resins (SIC 2821)
and Synthetic Fibers (SIC 2824) 5-15
5-12 International Trade Situation by Chemical for Plastics
and Resins (SIC 2821) and Synthetic Fibers (SIC 2824) 5-16
5-13 Synthetic Fibers Baseline 5-18
5-14 Poor Growth Products in the Synthetic Fibers Group 5-18
5-15 Major Subgroups of Miscellaneous End-Use Chemicals
and Chemical Products ' 5-19
5-16 Miscellaneous End-Use Chemicals Real Growth, 1982 - 1988 5-20
5-17 Cellulose Acetate Real Growth, 1982 -1988 5-21
5-18 Plasticizers Real Growth 1982 - 1988 5-22
5-19 Cellulosic Fibers Real Growth 1982 - 1988 5-22
5-20 Dyes Real Growth, 1982 - 1988 5-23
5-21 Organic Pigments Real Growth, 1982 - 1988 5-24
5-22 Rubber Processing Chemicals Real Growth, 1982 - 1988 5-24
5-23 Flavor and Perfume Materials Real Growth, 1982 - 1988 5-25
5-24 Miscellaneous Cyclic and Acyclic Chemicals Baseline... 5-26
5-25 Price, Production, and Value of Production by Product for
Miscellaneous Cyclic and Acyclic Chemicals (SIC 2869-7) 5-27
5-26 Low Growth Miscellaneous Cyclic and Acyclic Chemicals 5-28
5-27 Production, Capacity, and Capacity Utilization by Product
for Miscellaneous Cyclic and Acyclic Chemicals (SIC 2869-7)..5-30
5-28 Low Capacity Utilization Miscellaneous Cyclic
and Acyclic Chemicals 5-31
5-29 International Trade Situation by Product for Miscellaneous
Cyclic and Acyclic Chemicals (SIC 2869-7) 5-33
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5-30 Cyclic Intermediates Baseline. 5-34
5-31 Price, Production and Value of Production by Product
for Cyclic Intermediates (SIC 2865-1) 5-35
5-32 Low Growth Cyclic Intermediates 5-36
5-33 Production, Capacity and Capacity Utilization by
Product for Cyclic Intermediates (SIC 2865-1) 5-37
5-34 Low Capacity Utilization Cyclic Intermediates 5-38
5-35 International Trade Situation by Product for
Cyclic Intermediates (SIC 2865-1) 5-39
5-36 Summary of Low Baseline Growth Chemicals 5-40
5-37 Financial Ratios Used in Plant Baseline
Estimation (percent) .5-42
5-38 Distribution of Baseline Plant Sales by Plant Size 5-44
5-39 Distribution of Baseline Plant Employment by
OCPSF SIC Group 5-45
5-40 Petrochemical Exports and Imports for Selected
Products for 1981, 1985, and 1990 5-46
5-41 U.S. Foreign Trade by Chemical Product for Plastics and
Resins (SIC 2821) and Synthetic Fibers (SIC 2824) 5-48
5-42 U.S. Foreign Trade Situation by Product for Miscellaneous
Cyclic and Acyclic Chemicals (SIC 2869-7)) 5-50
5T43 U.S. Foreign Trade Situation by Product Cyclic
Intermediates (SIC 2865-1) 5-51
5-44 Impact Results for RCRA by Subcategory 5-54
6-1 Summary of Results — Existing Dischargers 6-2
6-2 Impact Results for BPT Option I by Subcategory.. ..6-5
6-3 Impact Results for BPT Option II by Subcategory 6-6
6-4 Impact Results for BAT Option II by Subcategory. 6-8
6-5 Impact Results for BAT Option III by Subcategory 6-9
6-6 Impact Results for PSES Option III by Subcategory 6-11
6-7 Summary of Firm Level Investment impacts 6-13
6-8 Foreign Trade Impacts — Foreign Trade
Sensitive Chemicals 6-18
6-9 Production Lost in Foreign Trade Sensitive
Chemicals Due to Closures 6-20
6-10 Incremental Price Increases Due to
Regulatory Options 6-22
6-11 Total Price Increases Due to Combinations
of Regulatory Options 6-22
6-12 Closure Candidates by Size Tiers 6-24
6-13 NSPS Model Plants and Annual Compliance
Costs for Conventional Pollutants 6-26
6-14 NSPS Impact Measures for Conventional Pollutants 6-27
6-15 NSPS Impact Measures for Priority Pollutants 6-29
7-1 Breakdown of Closure Candidates by
OCPSF Employment as Percent of
Total Plant Employment 7-3
8-1 Sensitivity Analysis of BPT Option II 8-2
8-2 Sensitivity Analysis of BAT Option II 8-2
8-3 Sensitivity Analysis of BAT Option III. 8-3
8-4 Sensitivity Analysis of PSES Option III 8-3
8-5 Sensitivity Analysis: Cost of Capital 8-6
8A-1 Financial Ratios Used in OCPSF Analysis: All Plants 8A-2
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Section 1
Summary
1.1 Introduction
This report identifies and analyzes the economic impacts which are
likely to result from water pollution control regulations on the Organic
Chemicals, Plastics and Synthetic Fibers (OCPSF) Industry. The regulations
include effluent limitations and standards based on Best Practicable Tech-
nology Currently Available (BPT), Best Available Technology Economically
Achievable (BAT), New Source Performance Standards (NSPS), and Pretreatment
Standards for Existing and New Sources (PSES and PSNS). New information
on these regulations is being noticed in the Federal Register for public
comment, under the authority of the Clean Water Act of 1977.* The primary
economic impact variables assessed in this study include the costs of the
contemplated regulations, and the potential for these regulations to cause
plant closures, price changes, unemployment, reductions in profitability,
shifts in the balance of trade and anticompetitive effects on small businesses
and new facilities.
1.2 Industry Coverage
The organic chemicals and plastics industry is defined as plants which
manufacture organic chemicals, plastic resins and synthetic fibers. Five
groups of the Standard Industrial Classification (SIC) are considered to
comprise this industry: SIC 2821 (Plastics Materials and Resins), SIC 2823
(Cellulosic Manmade Fibers), SIC 2824 (Organic Fibers Noncellulosic), SIC
2865 (Cyclic Crudes and Intermediates) and SIC 2869 (Industrial Organic
Chemicals; not elsewhere classified). A total of 997 plants have been
identified as manufacturing within these groups.
1.3 The Economic Impact Assessment Methodology
The principal element of the assessment methodology is a plant-by-
plant impact analysis. The plant level analysis includes measures of
changes in production costs, profitability, and liquidity, as well as a plant
closure assessment based on a discounted cash flow analysis. Employment
effects based on closures are also estimated.
The baseline year for this analysis is 1988. The industry's economic
condition is forecast to 1988 using survey information from 1982 and Data
Resources, Inc. (DRI) chemical models. Other financial parameters are also
used to establish the baseline conditions.
Impacts are estimated for those plants which will incur costs and for
which enough economic data are available. Out of the 997 plants estimated to
be the industry universe, 710 plants are expected to incur costs. Impacts
are evaluated for 637 plants.
*P.L. 95-217
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1-2
The firm level, product level, employment and community impacts are
based on the plant level analysis. Balance-of-trade and small business
effects are also evaluated.
The principal source of data at the plant level is the EPA survey of
manufacturers conducted in 1983-84 under Section 308 of the Clean Water
Act. The survey effort yielded data on plant production and shipments,
production costs, employment and capital expenditures. The other principal
data sources used in the analysis include U.S. Government statistics on the
industry (Department of Commerce, Bureau of Census, etc.), Data Resources,
Inc., macroindustry forecasts and chemical industry models, and financial data
from Robert Morris Associates, Compustat Services, Moody's Industrial Manual,
The Million Dollar Directory and state industrial guides.
1.4 Industry Profile
The OCPSF industry produces thousands of products which range from
crude coal coking residues to highly refined synthetic fibers and resins.
The products can be grouped into two categories: (1) intermediate chemicals,
and (2) finished chemicals. The intermediate chemicals can often be used
both as intermediate and finished chemicals. The sixteen largest volume
intermediates accounted for over two billion pounds of U.S. product in
1982. The nine major groups of finished chemical products are: organic
dyes, pigments, plastics and synthetic resins, flavor and fragrance chemicals,
rubber processing chemicals, plasticizers, synthetic fibers, cellulosic
fibers, and other miscellaneous finished products.
Based on EPA survey data, 1982 OCPSF production totalled 172 billion
pounds with a sales value of $53 billion. The industry employed 187 thousand
full-time employees.
Plants with annual sales over $50 million account for 22 percent of the
plants in the industry, while 24.5 percent of the plants have less than $5
million in annual sales. Smaller plants tend to be concentrated in SIC 2821,
while the cellulosics fibers producers (SIC 2823) tend to be quite large.
Plant ownership is split equally among public and private firms. Private
firms produce lower quantities of OCPSF products. The largest numbers of firms
occur in SICs 2821 and 2869, which together account for 60 percent of the firms,
while only 20 firms, produce cellulosic and noncellulosic fibers.
1.5 Impact Analysis Results
1.5.1 Plant Impacts
The results of the plant level analysis are summarized in Table 1-1.
Compliance costs for BPT Option I are estimated for 304 plants. These
costs are estimated to total $277.2 million in capital investment and $77.8
million in operation and maintenance costs, resulting in a total annualized
cost of $131.0 million (1982 dollars). For the 280 plants analyzed, the
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O O
cj y
-------
1-4
median decrease in profitability is expected to be 7.5 percent, and production
costs are expected to rise by 0.5 percent. The median plant liquidity ratio
decrease under this option is expected to be 4.8 percent. The plant closure
analysis shows that four plants are expected to shut down completely and six
plants are forecast to shut down their plastics and organic chemicals produc-
tion lines. These combined plant and line closures would cause an employment
loss of 251 jobs.
The estimated costs and impacts for BPT Option II are almost identical
to those predicted for BPT Option I. Compliance with this option by 304
plants is expected to cost $294.2 million in capital investment, and $82.4
million in operation and maintenance, resulting in a total annualized cost
of $138.9 million (6 percent higher than BPT Option I). The median decrease
in profitability across all the 280 plants analyzed is expected to be 8.8
percent, and production costs will increase by 0.6 percent. The median
plant liquidity decrease is expected to be 5.8 percent. These measures
are only slightly higher than those reported for BPT Option I. Plant and
line closures and the resulting employment effects are identical to those
expected for BPT Option I — four plant closures, six product line closures,
and 251 job losses.
For the purposes of this analysis, the costs and impacts for BAT Option
I are assumed to be the same as for BPT Option II, both of which are based
on Biological Treatment With and Without Polishing Ponds. Some direct
dischargers do not need to install biological treatment in order to meet BPT
conventional pollutant limitations, but may need to install some combination
of in-process controls to meet priority pollutant limitations based on
biological treatment. The actual costs and impacts for BAT Option I are
expected to fall somewhere between those reported for BPT Option II and
BAT Option II. The Agency will incorporate the costs and impacts specific
to BAT Option I in the analysis for the final rule.
Compliance costs for BAT Option II* (expected to be incurred by 30b
plants) are projected at $607.2 million in capital investment, and $298.1
million in operation and maintenance costs, resulting in a total annualized
cost of $414.7 million. Based on the 282 plants analyzed, the median
decrease in profitability is expected to be 17.4 percent. The median
production cost increase is 1.3 percent, while the median liquidity ratio
drops by 15.5 percent. A total of 11 plants are forecast to shut down,
and another 11 plants are forecast to shut down their plastics and organic
chemicals production lines. These combined plant and line closures would
result in an estimated loss of 3,966 jobs.
The impacts of BAT Option III are expected to be considerably more
severe than for BAT Option II. Compliance costs with BAT Option III are
expected to total 1,437.1 million in capital investment, $400.9 million in
operation and maintenance, resulting in a total annualized cost of $676.8
million, about a 60% increase from BAT Option II. The incremental median
profitability reduction is 33.9 percent for BAT Option III, compared to
17.4 percent for BAT Option II. The median increase in production costs
is expected to be 2.4 percent, compared to 1.3 percent for BAT Option II.
*Both BAT options are evaluated from BPT Option II.
-------
1-5
The liquidity ratio decrease is 26.6 percent, compared to 15.5 for BAT
Option II. Plant closures rise significantly under BAT Option III relative
to BAT Option II, from 11 to 20 plants of the 282 plants analyzed. Plants
expected to shut down their plastics and organic chemicals production
lines also rise from 11 to 19. Employment losses under BAT Option III are
expected to total 9,906 jobs, more than double the 3,966 jobs lost under
BAT Option II.
Compliance costs for PSES Option II (which are expected to be incurred
by 404 plants) are projected to total $303.8 million in capital investment,
and $107.7 million in operation and maintenance costs, resulting in total
annualized costs of $166.1 million. Based on the 355 plants analyzed, the
median reduction in profitability is expected to be 32.5 percent. Median
production cost increases are expected to equal 2.4 percent. The median
decline in the liquidity ratio is estimated at 21.7 percent. Nineteen
plants are expected to close, and an additional 37 plants are expecteed to
shut down their plastics and organic chemicals production lines. These
plant and line closures are projected to cause employment losses of 1,595
jobs.
The impacts for PSES Option III are projected to be less severe than
those for PSES Option II. Compliance costs are expected to total $189.2
million in capital investment, and $99.0 million in operation and maintenance,
resulting in a total annualized cost of $135.3 million. Based on the 355
plants analyzed, the median decrease in profitability is expected to be
26.0 percent. Median production cost increases are expected to equal 1.8
percent. The median decrease in the liquidity ratio is estimated at 15
percent. Sixteen plants are expected to close, and an additional 28 plants
are expected to shut down their plastics and organic chemicals production
lines. These plant and line closures are estimated to cause employment
losses of 1,073 jobs.
1.5.2 Firm Impacts
Five firms may have difficulty in financing pollution control expenditures
due to their generally weak financial condition.
1.5.3 Community Impacts
The analysis found no significant community impacts resulting from either
BPT or PSES regulatory options. Under BAT Options II and III, some communities
are expected to incur significant impacts.
1.5.4 Balance of Trade Impacts
The BPT and PSES regulatory options are not expected to have foreign
trade impacts. BAT Option II is expected to have a small impact on one chemical
group and BAT Option III is estimated to have a small impact on two chemical
groups.
-------
1-b
1.5.5 Small Business Impacts
Projected closures are more heavily weighted among small businesses
(defined as those plants with sales of less than $5 million annually),
especially at BPT and PSES. At the BAT levels of control, the effects on
small businesses are less pronounced.
1.5.6 New Sources Impacts
The incremental impacts for additional control of conventional and
priority pollutant control for new sources are considered small.
1.6 Limits of Analysis
The limits to this analysis fall into two categories: (1) methodological
and (2) data.
The three major methodological limitations are: (1) ability to project
accurately the 1988 baseline; (2) the recognition that a decision to close a
plant is a complex decision process not fully accounted for in the cash flow
analysis; and (3) that the full/no cost pass through decision yields conser-
vative impact measures.
The data limitations are numerous, with the most important being the
current liquidation value estimate.
1.7 Sensitivity Analysis
A sensitivity analysis on several parameters is summarized in Section 8.
-------
Section 2
Industry Profile
2.1 Overview
The Organic Chemicals, Plastics and Synthetic Fibers (OCPSF) industry
consists of products which are used in a broad range of manufacturing and end
use applications across the U.S. and abroad. The industry includes about
3,000 production plants and approximately 25,000 products. In 1982, the OCPSF
industry total sales were 45 billion dollars. This represents 3.7 percent of
the total value of shipments for U.S. manufacturing industries. The total
OCPSF production volume in that year was 191.7 billion pounds.
This section examines the structure of the OCPSF industry and prevailing
market conditions for its products because these factors influence the
industry's ability to afford additional capital outlays for pollution control
equipment, included in this industry description are subsections on the major
product groups and their end-uses, competitive structure of the industry
including concentration and integration, historical price and production
performance, employment, foreign trade, financial performance, and firm and
plant characteristics.
2.1.1 Industry Definition
For the purposes of this study, the Organic Chemicals Plastics and
Synthetic Fibers (OCPSF) industry includes plants producing products
classified in the following SIC groups: 2821, Plastics Materials, Synthetic
Resins and Nonvulcanizable Elastomers; 2823, Cellulosic Man-Made Fibers; 2824,
Synthetic Organic Fibers, Except Cellulosic; 2865, Cyclic (Coal Tar) Crudes
and Cyclic Intermediates, Dyes and Organic Pigments (Lakes and Toners); and
2869, Industrial Organic Chemicals, Not Elsewhere Classified. Within these
classes, the following plants are excluded from this study:
•Organic chemical compounds that are produced solely by
extraction from natural materials, such as parts of plants and
animals, or by fermentation processes, are not included in this
definition of the OCPSF industry even if classified in one of
the OCPSF SIC classifications. For some petroleum refineries
and pharmaceutical manufacturers, process wastewater from some
synthetic organic chemical products are specifically regulated
under the Petrochemical Subcategory of the Petroleum Refining
Point Source Category (40 CFR 419, Subpart C) or the Chemical
Synthesis Products Subcategory of the Pharmaceuticals
Manufacturing Point Source Category (40 CFR 439, Subpart C).
The petroleum refineries and pharmaceutical manufacturers that
produce organic chemical products which generate process
wastewaters that are treated in combination with petroleum
refinery or pharmaceutical manufacturing wastewaters,
respectively, should consider any such organic chemical product
as a non-OCPSF products for the purposes of this study.
-------
2-2
However, if petroleum refineries or pharmaceutical manufacturers
produce organic chemical products that generate process
wastewaters which are treated in a separate wastewater treatment
system, then these facilities should consider any such organic
chemical product as an OCPSF product for the purposes of this
study."*
2.2 Product Characteristics
The OCPSF industry produces thousands of products which range from crude
coal coking residues to highly refined synthetic fibers and resins. For the
purposes of the discussion in this section, these products are grouped into
two product types: 1) basic and intermediate chemicals; and 2) finished
products. These product types are distinguished by their end-uses. Basic and
intermediate chemicals are used exclusively as feedstocks for more refined
chemical products. Finished products have many markets, but they undergo no
further chemical processing.
Table 2-1 presents production, sales, price and end-uses for 12 principal
product groups constituting the OCPSF industry. These product groups were
chosen to match the United Stated International Trade Commission (ITC)
classification system so that ITC price, production and sales data could be
used. These twelve product groups are: tar and tar crudes; cyclic
intermediates; miscellaneous cyclic and acyclic chemicals; dyes; organic
pigments; flavor and perfume materials; plastics and resin materials; rubber
processing chemicals; plasticisers; synthetic fibers; cellulosic fibers; and
miscellaneous end-use chemicals and chemical products. The 1982 production
levels range from 71 million pounds for organic pigments to 80,494 million
pounds of miscellaneous cyclic and acyclic chemicals. The prices in 1982
range from 13 cents per pound for coal tar to $6.34 for organic pigments.
Figure 2-1 has been prepared by the Data Resources Inc. (DRI) Chemical
Service to illustrate the production paths in the OCPSF industry. The figure
is composed of boxes, representing major OCPSF products, and lines
representing their different production paths. Multiple lines passing into a
box indicate either that the product requires two or more feedstocks or that
it has more than one production process. The principal petroleum and natural
gas feedstocks to the industry are the source of the 11 basic chemicals shown
in the figure. The boxes in the center of the figure can be described as
intermediate chemicals. Those on the right side of the figure are finished
products or product groups. Although the figure presents only 83 OCPSF
products and product groups and excludes five of the 12 product groups used
here (.i.e., those without large volume products), it represents about 70
percent of the production volume in the OCPSF industry.
2.2.1 Basic and Intermediate Chemicals
The basic chemicals can be divided into aromatics and aliphatics
(primarily olefins). The aromatics include benezene, xylenes, toluene and
naphthalene, all characterized by a ringed carbon molecular structure.
* This description of regulatory application was provided in the §308
Survey distributed to plants in the OCPSF industries.
-------
2-3
Table 2-1. U.S. Production, Sales and
Uses of OCPSF Products - 1982
OCPSF
Product
Groups
Production
(Billion
Ibs).
Sales
Quantity
(Billion
Ibs).)
Value
(Billion
dollars)
Unit
Value ($
per pound
Final Products
or End-uses
BASIC AND INTERMEDIATE CHEMICALS:
Tars and Tar
Crudes* (4.003) (2.093)
Cyclic
Intermediates 37.637 16.193
Miscellaneous
Cyclic and 80.494 34.647
Acyclic
Chemicals
(0.278) ($0.13)
5.831 $0.36 Chemical Intermediates
10.604 $0.29 Chemical Intermediates
and solvents
FINISHED CHEMICALS:
Dyes
Organic
Pigments
Flavor and
Perfume
Materials
Rubber
Processing
Chemicals
0.222
0.071
0.156
Plastics and 38.313
Resin
Materials
0.232
0.214
0.059
0.113
0.154
0.685
0.374
0.284
32.002 15.313
0.264
$3.20 Coloring of textiles,
natural and synthetic
fibers, fabrics and
other materials.
$6.38 Coloring of printing
inks, paints and
plastics.
$2.51 Food and beverage
flavors, perfumery,
cosmetics and
toiletries.
$0.48 Building materials
(pipes, siding,
insulation), packaging
(wrappings, bottles,
cartons) , automotive
applications.
$1.72 Used in manufacturing
natural and synthetic
rubber.
(continued on next page)
-------
2-4
Table 2-1. U.S. Production, Sales and
Uses of OCPSF Products - 1982
(continued)
OCPSF
Product
Groups
Production
(Billion
Ibs).
Sales
Quantity
(Billion
Ibs). )
Value
(Billion
dollars)
Unit
Value ($
per pound
Final Products
or End-uses
FINISHED CHEMICALS (continued):
Plasticizers 1.411
1.316
0.741
Synthetic
Fi bers**
Cellulosi c
Fibers**
Miscellaneous
End-Use
Chemicals
and Chemical
Products
6.442
6.780
7.160
0.584
0.588
0.972
22. 146***
3.278
2.804
$0.56 Used in manufacturing
plastic and synthetic
rubber products to
improve workability
during fabrication or
alter properties of
final products.
$1.06 Home furnishings,
reinforced plastics and
electrical products,
tires, and apparel.
$1.65 Drapery and upholstery,
medical and sanitary
products, apparel, and
other consumer products.
$0.86 Polymers for synthetic
and cellulosic fibers,
gasoline and lube oil
additives, enzymes,
chelating agents, paint
driers, photographic
chemical's, tanning
materials, solvents,
chemical intermediates.
TOTAL 191.709
OCPSF INDUSTRY
97.437 45.310
"$0.47
Sources: ITC, Synthetic Organic Chemicals: Prices and Production for 1982,
Publication No. 1422, except where noted.
These figures
Department of
* The data for tar crudes are not available for 1982.
represent only the data for coal tar.
** These data are from Textile Organon, January 1984, and U.S.
=. Commerce, 1983 U.S. Industrial Outlook.
*** Includes 12.7 billion pounds of miscellaneous unspecified chemicals of
which only 0. 1 billion were sold. This 1982 figure may be a reporting
error since in 1981 this miscellaneous group was about 10 billion pounds
less.
-------
2-5
Figure 2-1. OCPSF Industry Production Paths
DRi CHEMICAL SERVICE
Source: Data Resources,
Inc., Chemical
Service.
-------
2-5
DRI CHEMICAL SERVICE
Figure 2-1. OCPSF Industry Production Paths
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-------
2-6
Aliphatics include ethylene, propylene, butylenes and butanes, all with
acyclic molecular structures and all olefins except butane. Basic chemicals
are used to produce intermediates, which are used to produce finished
products. Figure 2-1 illustrates these chemical flows through the industry.
The primary feedstocks to the OCPSF industry are petroleum fractions (55
percent), natural gas (40 percent) and coal (5 percent). Chemicals derived
directly from coal, referred to in this study as 'tar and tar crudes" are
classified as SIC 2865 and are the only basic chemicals covered by this
regulation. The basic chemicals derived from petroleum and natural gas are
in SIC group 2911 and are, therefore, not covered by this regulation. Coal
tar is a byproduct of coking operations for steel manufacturing. It is
distilled to yield benzene, toluene, xylenes, naphthalene and other aromatic
chemical products.
Intermediate chemicals covered by this regulation include cyclic
intermediates (SIC 28651) and miscellaneous cyclic and acyclic chemicals
(SIC 28697). Figure 2-1 identifies the major intermediate chemicals and
shows their role in the production path from basic chemicals to finished
products. The six largest volume cyclic intermediates are styrene,
ethylbenzene, cumene, p-xylene, aniline and phenol. The ten largest volume
acyclic intermediates are acetic acid, acrylonitrile, dimethyl terephthalate,
ethylene oxide, ethylene glycol, ethylene dichloride, formaldehyde, methanol,
terephthalic acid and vinyl chloride. In 1982, over two billion pounds of
each of these 16 chemicals were produced in the U.S.
The designation of intermediate means that the principle use of these
chemicals is in chemical synthesis. However, some of the chemicals in the
two intermediate product groups are not used exclusively as chemical
intermediates. Ethylene glycol, for example, is used both as an intermediate
in the synthesis of polyester fiber and film and as a finished product in
antifreeze compositions. Solvents are included in this group because,
although they are used as finished products, many of them are also used in
the synthesis of other chemicals.
2.2.2 Finished Chemicals
Finished products are defined as products requiring no further chemical
synthesis. The nine major groups of OCPSF final products are: organic dyes,
pigments, plastics and synthetic resins, flavor and fragrance chemicals,
rubber processing chemicals, plasticisers, synthetic fibers, cellulosic
fibers, and other miscellaneous finished products.
Dyes, SIC group 28652, are organic chemicals used to impart color to
fabric or other materials. They are generally soluble in water or solvents.
There are over 1500 domestically manufactured dyes. The primary end uses for
dyes are in the textile industry (76 percent of production). Other uses for
dyes are in the paper industry (20 percent), plastics, leather, food,
gasoline, and to make some of the organic pigments. Since most dyes are
consumed by textile manufacturers, they are commonly known by the textile
industry's classification system. The nine dye groups in the system are:
-------
2-7
acid, azoic, basic, direct, disperse, mordant, reactive, sulfur and vat. The
most important among these groups are the vat dyes. The major dyes employed
in non-textile uses are optical brighteners, solvent dyes, and food, drug and
cosmetic colors.
Organic pigments, lakes and toners (SIC 28653) are derived from dyes or
from intermediates which resemble dyes. The largest group consists of those
chemically related to the azo dyes. These pigments have good tinting
strength and resistance to light, acid and alkalies but they are sensitive to
heat. The most important of these are the Benzidine yellows. Another major
group, phthalocyanines, is available in blue and green and exhibits
lightfastness, intensity, resistance to chemicals, stability to heat and very
high tinting strength. The other important organic pigments are quinacridone
oranges and reds, vat pigments, dioxazines, and tetrachloroisoindolinones.
The primary end-uses for organic pigments are in printing inks (45 percent),
paints (35 percent) and plastics (10 percent).
The flavors and perfumes industry (SIC 28693) accounts for about one
percent of total chemical industry sales and only a very small part of the
industry's total production but is extremely profitable. The industry is
involved in the production of flavors and fragrances, flavor enhancers and
synthetic sweeteners; flavors and fragrances account for the bulk of
production and sales. Flavors and perfumes (or fragrances) are blends of
different substances and a company in-this industry group may be involved
in: (1) synthesis of aroma or flavor chemicals; (2) production or purchase
of natural oils and other products; and (3) blending the synthetic and the
natural substances to achieve the desired flavor or aroma.
The primary end-use for flavors is soft drinks, with 60 percent of the
total volume going to that market. About two thirds of the perfumes produced
are used in cosmetics and toiletries and the remaining third is used in
scented candles, household cleansers and industrial deodorizers. Monosodium
glutamate (MSG) is the only flavor enhancer of economic significance and in
1979 it had sales of $33 million. The only commercially important synthetic
sweetener is Saccharin since cyclamates were removed from the market in
1969. In 1979, sales of saccharin were $27 million. The distribution of
flavor and perfume materials among end uses is shown in Table 2-2.
Table 2-2.
End-Use of Flavors, Perfumes and Related Products — 1979
End-Use Product
Merchant Sales Percent
(million i)
Flavors and fragrances 830 93
Flavor enhancers (MSG) 33 4
Synthetic sweeteners 27 3
Total I 890 100
Source: Kline Guide to the Chemical Industry, 1980.
-------
2-8
Plastics materials and synthetic resins manufacturers (SIC 2821) make
up a large and profitable part of the chemical industry. While the terms
are often used interchangeably, plastics can be formed into solid shapes
with good mechanical properties while resins are used in coatings,
adhesives and for other uses where binding properties are needed. The
polymers used to make plastics are similar to those used for fibers and
several of them are used for both finished products.
Plastics and resins are extremely versatile in both mechanical
properties and potential end-uses. Much of the growth in the plastics and
resins industry is a consequence of these products being acceptable
replacements for natural materials such as metals, glass, wood, and
paper. While there are about 40 different plastic materials with
commercial applications, four major types accounted for 74 percent of
total production in 1982. These major types are polyethylenes, vinyls,
styrenes, and polypropylene.
Table 2-3 shows the amount of each type of plastic consumed in 1979 by
different end-uses. Total consumption of 46.4 billion pounds exceeded
production by approximately ten percent. The table is useful in showing
the mix of plastics consumed for each end use (read vertically) as well as
the distribution of end-uses for each type of plastic (read
horizontally). For example, of a total of 10.017 billion pounds of
plastics consumed in 1979 for packaging, 50 percent was polyethylene, five
percent was vinyl, 14 percent was styrene, and six percent was
polypropylene. Table 2-3 also shows that, of the 12.841 billion pounds of
polyethylene consumed, 39 percent was used for packaging, six percent for
construction, 36 percent for housewares and other domestic uses, and 13
percent-was exported.
Rubber-processing chemicals (SIC 28693) are use.d to facilitate
processing, or improve the finished rubber product. The major types of
rubber processing chemicals are antioxidants, which serve to retard the
deterioration of rubber by oxygen and accelerators which are used to
increase the rate of vulcanization. Tires and related products consumed
almost 65 percent of all rubber processing chemical production, followed
by mechanical goods (18.5 percent), footwear (six percent), latex foam
products (3.5 percent), and wire and cable (one percent).
Plasticizers (SIC 28693) are organic chemicals that are mixed in with
vinyl or other polymers to alter the latter"s qualities. They can be used
to improve processability or modify the final product, mainly by
increasing flexibility. The major plasticizers are the phthalates with
over 50 percent of total plasticizer production and phosphate plasticizers
with roughly eight percent of total production. Roughly 85 percent of
total shipments of plasticizers are used in plastics. Use for PVC alone
accounts for about two-thirds of U.S. plasticizer consumption. The
remainder is utilized in rubber compounding and in non-plasticizer
applications.
Synthetic fibers (SIC 2823) are made by extruding filiment from a
polymer melt or solution through small orifices. The fiber
characteristics vary with the different polymers used and with size and
shape characteristics of the filament. The major synthetic fibers are
-------
2-9
Table 2-3. Consumption of Plastics by End Use - 1979
End OSes (quantities are In millions of pounds)
Packaging
Construction
Bsusewares
Exports
Other Uses
Source: Kline Guide to the Chemical Industry, 1980.
Total
Percent Percent Percent Percent Percent
Plastic Quantity Consumed Quantity Consumed Quantity Consumed Quantity Consumed Quantity Consumed Quantity
Type Consumed For This Consumed For This Consumed For This Consumed For This Consumed For This Consumed
End-Use End-use End-Use End-Use End-Use
Polyeth-
ylene
Vinyl
Styrene*
Polyprop-
ylene
Other
plastics
TOTAL
5,049
530
1,395
625
2,418
10,017
39
7
22
16
15
22
731
3,238
621
24
3,647
8,261
6
42
10
1
23
18
4,592
1,956
2,605
1,893
4,303
15,349.
36
26
42
48
. 27
33
1,641
492
397
802
1,143
4,475
13
6
6
20
7
10
828
1,447
1,210
638
4,162
8,285
6
19
19
16
27
18
12,841
7,663
6,228
3,982
15,673
46,387
* Figures for styrene include:
acrylonitrile-butadiene-styrene (ABS);
styrene-acrylonitrile (SAN);
straight polystyrene; and
other styrenes.
-------
2-10
polyester, nylon, acrylics and polypropylene. In 1979, polyester was almost
45 percent of the total manmade fibers production compared to nylon with a 29
percent share. Cellulosic fibers (SIC 2824) are manmade fibers made from
regenerated cellulose derived from high purity wood pulp or cotton linters.
The major cellulosic fibers are rayon and acetate. Consumption of manmade
cellulosic and synthetic fibers in the U. S was about 9.9 billion pounds in
1979. Table 2-4 presents 1982 U.S. consumption by the major end-use products
of these fibers.
Table 2-4.
Uses of Manmade Cellulosic and Synthetic Fibers - 1982
Percent of 1982
U.S. Consumption
Industrial and Other Consumer Goods
- Reinforced plastics and electrical
- Tires
- Medical, surgical and sanitary
- Other (e.g., rope, coated fabrics)
Home Furnishings
Carpet, rugs
Drapery and upholstery
- Other (e.g., curtains, blankets)
Apparel
- Bottom weight fabrics
Topweight fabrics
- Fabrics for lining
- Other apparel
Export
Cellulosic
0
2.4
20.1
14.4
0.1
13.9
5.6
5.5
10.2
13.4
10.8
3.6
Synthetic*
9.0
5.1
1.8
18.2
23.6
2.4
6.6
11.4
5.6
0.4
13.1
2.8
Source: Textile Organon, September/October 1983.
* Includes glass fibers which are not separable from available data.
Miscellaneous end-use chemicals and chemical products (SIC 28696)
includes products used in many different industries. This group includes
finished products classified as chelating agents, chemical indicators,
chemical reagents, enzymes, gasoline additives, lubricating oil and grease
additives, paint driers, photographic chemicals, polymers for fibers,
water-soluble polymers, synthetic tanning materials and textile chemicals.
2. 3 Market Structure
The market structure of the OCPSF industry is discussed according to the
following five factors: 1) industry concentration; 2) integration and
diversification; 3) product differentiation and competition; 4) product
substitution, demand elasticity and profitablility; and 5) barriers to entry
into the industry.
-------
2-11
2.3.1 Industry Concentration
Sales of OCPSF products are generally concentrated among a small number
of firms. Concentration ratios are available from the Census of Manufactures
for ten five-digit SIC groups. These are associated with the twelve
principle product groups in Table 2-5. Concentration varies among the
different product groups, with highest concentration levels in the fiber and
tar crudes product groups and the lowest in the plastics and resin materials
group. The four largest companies producing tar crudes account for 97
percent of total shipments, and the eight largest cellulosic fiber producers
account for 100 percent of cellulosic fiber shipments. Plastics and resin
materials have the lowest level of concentration with the four largest and
eight largest companies accounting for only 24 and 38 percent, respectively,
of the total value of shipments.
Table 2-5. Industry Concentration Ratios
Percent of Value of Product Shipments
: 4 Largest 8 Largest 20 Largest
SIC Class Associated Product Group(s) Companies Companies Companies
2821 Plastics and Resin Materials 24
2823 Cellulosic Fibers NA
2824 Non-Cellulosic Synthetic
Fibers 76
28651 Cyclic Intermediates 44
28652 Dyes 43
28653 Organic Pigments 48
28655 Tar Crudes 97
28693 Plasticisers,
Rubber Processing Chemicals,
Flavor and Perfume
Materials 31
28696 Miscellaneous End Use
Chemicals and Chemical
Products
28697 Miscellaneous Cyclic and
Acyclic Chemicals
41
39
38
100
90
59
63
71
99
46
62
55
61
100
99
81
93
94
100
75
90
75
Source: U.S. Department of Commerce, Census of Manufactures, 1977.
-------
2-12
2.3.2 Integration and Diversification
Vertical integration and product diversification are both very common in
the OCPSF industry. The wide use of chemicals and chemical products in U.S.
manufacturing has encouraged many different types of companies to integrate
backward to the manufacture of chemicals. Furthermore, since chemical
industry feedstocks are made from oil refinery or steel industry by products,
there is a strong incentive for these kinds of companies to integrate forward
to the manufacture of basic chemicals. Vertical integration is most evident
at the plant level, for reasons of reducing transport, marketing and handling
costs. Virtually all producers of basic chemicals either have backward
integration to oil refining operations, or forward integration to inter-
mediate chemical manufacturing operations at the same site. Most inter-
mediate and finished product manufacturers also produce associated basic,
intermediate or end-use products on site. According to the 1980 Kline Guide
to the Chemical Industry, only 11 of the 100 leading U.S. chemical
manufacturers produced chemicals exclusively, and only 20 of these 100
companies had over 75 percent of their revenues from chemical products.
The extent of establishment level vertical integration and/or
diversification is evident in the low coverage and specialization ratios
reported by the Census of Manufactures for the five SIC groups affected by
this regulation. The coverage ratio is the proportion of the total primary
product that is produced by establishments classified in an SIC group to the
total production of that product by all SIC groups. The specialization ratio
is the ratio of the primary production at an establishment to the total
production at that establishment. These ratios, shown in Table 2-6, indicate
that establishments in SIC group 2865 have low specialization and that they
produce a relatively small proportion of total production of 2865 chemicals.
The establishments producing non-cellulosic fiber have a lower level of
integration or diversification than the other SIC groups as shown by the
higher coverage and specialization ratios for that group.
Coverage and specialization ratios can also be computed from §308 Survey
data. They are compared to the Census of Manufactures' ratios in Table 2-6.
The important difference between the two sets of ratios is that the Census of
Manufactures figures are based on firm-level data whereas the §308 Survey
values are based on plant-level data. Because of the less aggregate level of
the §308 Survey-based calculations, coverage ratios can be expected to be
higher and specialization ratios lower than the firm-level ratios. The
comparison of the two sets of ratios indicates a general consistency between
them with most of the differences explained by the level of aggregation in
the respective databases.
2.3.3 Product Differentiation and Competition
The U.S. chemical industry is divided by the Kline Guide to the Chemical
Industry into four market, classes: true commodities, pseudo commodities, fine
chemicals and specialty chemicals. These classes are distinguished by
production volume and product differentiation, as illustrated in Table 2-7.
Table 2-8 associates one or more of these market classes with each of the
twelve OCPSF product groups.
-------
2-13
Table 2-6. Industry Coverage and Specialization Ratios
Coverage Ratio
Specialization Ratio
SIC
Class
2821
2823
2824
2865
1977 Census
Associated Product Groups of Manufactures
Plastics and Resin Materials 74
Cellulosic Manmade Fibers
Non-Celluloslc Synthetic Fibers 97
Tar Crudes, Cyclic Intermediates, 67
1982 1977 Census 1982
S308 Survey of Manufactures 5308 Survey
74
73
93
75
85 54
81
84 81
68 51
Dyes and Organic Pigments
2869 Plasticisers, Rubber Processing
Chemicals, Flavor and Perfume
Material*, Miscellaneous End Uie
Chemicals and Chemical Products,
and Miscellaneous Cyclic and
Acyclic Chemicals
84
91
69
62
Source: U.S. Department of Commerce, Census of Manufactures, 1977, and 5308 Survey.
Table 2-7. Chemical Industry Market Characteristics
Production Level
"Product Type
Undifferentiated | Differentiated
High Volume
Low Volume
True Commodities
Fi ne Chemicals
Pseudo Commodities
Speciality Chemicals
Source: Kline Guide to the Chemical Industry, 1980.
-------
2-14
Most basic chemicals are commodity products, as evidenced by their
competitive market environments and the low level of firm concentration. In
order to compete, producers of these chemicals reduce their transportation
and sales costs by vertically integrating their production facilities. For
example, many oil companies find that their captive source of petroleum
feedstock gives them a competitive advantage in the production of basic and
intermediate organic chemicals.
The opposite situation exists for speciality products. These products
are produced in small volumes, usually by single producers and for a single
application. While they may compete with other speciality chemicals, the
competition is based on the differential performance of the products as well
as on price. These chemicals, too, may be produced captively, but this
portion of the industry is generally not vertically integrated.
Pseudo commodities are high volume products which do have some product
differentiation. This group includes plastics and resin products, as well as
fibers, and some pigments. The market situation for these products is price
competitive, but this competition is tempered by the differential performance
provided by different producers.
Table 2-8. Market Classes of OCPSF Product Groups
Product Groups
Market Class( es)
1. Tar and Tar Crudes
2. Cyclic Intermediates
3. Misc. Cyclic & Acyclic Chemicals
4. Dyes
5. Organic Pigments
6. Flavor and Perfume Materials
7. Plastics and Resin Materials
8. Rubber Processing Chemicals
9. Plasticisers
10. Synthetic Fibers
11. Cellulosic Fibers
12. Miscellaneous End-Use Chemicals
and Chemical Products
Commodity, Fine
Commodity, Fine
Commodity, Fine
Specialty
Specialty
Fine
Pseudo Commodity, Specialty
Speciality
Speciality
Pseudo Commodity
Pseudo Commodity
Fine, Speciality
Sources: Kline Guide to the Chemical Industry, 1980, and EPA estimates.
-------
2-15
Fine chemicals are undifferentiated, low volume, and often unpatented.
This group includes low volume intermediates and flavor and perfume
materials. Like commodities, these products compete primarily on the basis
of price.
2.3.4 Product Substitution/ Research and Development, Demand Elasticity
and Profitability
Product substitution within the OCPSF industry occurs in the
differentiated product groups. The highest degree of substitution in the
OCPSF industry is among the specialty chemicals. Unlike many industries,
these substitutions are usually made to improve performance rather than to
reduce costs. Pseudo commodities have somewhat less substitution and the
undifferentiated chemicals have less yet.
Research and development of products and production processes plays an
important role in OCPSF industry growth. Products are developed to meet new
markets and to compete with existing products for established markets. For
differentiated products, performance oriented competition causes existing
markets to become divided among more and more different products.
Undifferentiated products manufacturers use research and development to
refine production processes and thereby reduce costs.
The elasticity of demand for OCPSF products is determined by consumer
sensitivity to price changes. Since finished products in the OCPSF industry
generally contribute to only a small part of the final consumer product
prices, elasticity tends to be low. Products that compete on performance
rather than price show further insensitivity to price change. Demand
elasticity estimates made by DRI indicate that elasticity for high volume
differentiated chemicals is extremely low, on the order of -0.1 to -0.4.
Demand for undifferentiated chemicals is slightly more elastic.
Profitability tends to be highest for producers of differentiated
chemicals. Since sales of these products are influenced more by performance
than by price, they can be priced high enough to reap superior profits.
Profits are lowest for the undifferentiated, high volume chemicals, with the
highest level of competition. Pseudo commodities again exhibit
characteristics of both the true commodities and the speciality products.
Their profitability, consequently, tends to lie between these two classes.
2.3.5 Barriers to Entry
New companies may be barred from entering the high volume sectors of the
OCPSF industries due to the large capital investments required. Scale ,
economies and the nature of price competition in these sectors is such that
small plants would be unprofitable. For example, a competitive plant for
production of vinyl chloride would need an annual capacity of 400 million
pounds per year and require over 175 million dollars of fixed capital. In
addition, this plant might be disadvantaged if it lacks a captive supply of
ethylene or a captive use for the vinyl chloride.
Since the disincentive effect of these barriers is smaller than the
advantages of inexpensive petroleum and natural gas feedstocks, these
-------
2-16
barriers have not prevented several petroleum producing countries from
constructing world scale petrochemical facilities. In the past few years
OPEC countries, Mexico and Canada have acted to enter the commodity chemicals
business. Their access to capital and low cost basic feedstocks (primarily
natural gas) has allowed them to compete successfully.
Since fine chemicals and specialty chemicals both require smaller capital
investments and compete on product performance rather than price, these
sectors present far smaller barriers to entry.
2.4 industry Performance and the Business Cycle
2.4.1 Historical Production and Comparison With Total Manufacturing
Historical OCPSF production for the period from 1975 to 1982 is shown in
Table 2-9. Industrywide production which grew at an average annual rate of
3.7 percent over the period, rose to a peak in 1979, dropped somewhat in 1980
and 1981, and then fell sharply in 1982. Prior to the mid-1970s production
had grown more rapidly than the U.S. economy, but with oil price increases,
international competition and a major economic recession, the growth rate has
since fallen. OCPSF industries now grow at a rate closer to that of the U.S.
economy. Table 2-10 presents trends in the GNP, the Manufacturing Production
Index (MPI) and recent OCPSF production. The annual changes in recent OCPSF
production are shown to be similar to changes in the MPI.
Each of the twelve product groups has generally followed the industrywide
production trend over the eight year period from 1975 to 1982. Flavor and
perfume chemicals and plastics and resins have shown the strongest growth;
both have had an average annual production increase of about 6.4 percent
between 1975 and 1982. Coal tar, rubber processing chemicals and cellulosic
fibers have shown the slowest growth. Coal tar has had an average annual
production decrease of 6.6 percent, due primarily to production decreases in
the U.S. steel industry, of which it is a by-product. Rubber processing
chemicals and cellulosic fibers also both had average annual production
decreases.
2.4.2 Industry Performance Trends
Performance in the OCPSF industry has been measured in terms of profit on
sales and profit on net worth. Historical trends in these measures are
presented in Tables 2-11 and 2-12, respectively. Since most manufacturing
companies are diversified into several industries, profits records do not
clearly reflect the profitability of discrete lines of business. Robert
Morris Associates has examined available lines of business records and
reports profitability for SIC 282 and SIC 286. These data are reported as
before-tax profits and are used in the impact analysis.
Citibank has provided aggregate profitability data for the chemicals
industries and for all U.S. manufacturing. Since these are after-tax profits
they are not directly comparable with the Robert Morris data, but they are
presented here to provide a reference point for chemical industry performance.
-------
2-17
Table 2-9. Production Trends by OCPSF Product Group, 1975-1982
(Millions of Pounds)
Year
Product Group
1.
2.
3.
4.
5.
Tar and
Tar crudes*
Cyclic
Intermediates
Miscellaneous
Cyclic and
Acyclic Chemicals
Dyes
Organic Pigments
1 1975 1
13,252
(6455)
31,412
77,850**
206
50
1976 1
13,546
(6364)
40,535
82,739
256
68
1977 |
(5929)
44,176
86,302
264
69
1978 1
(5405)
45,808
90,804
251
77
1979 1
(5896)
49,642
97,583
266
88
1980 1
(4366)
45,070
93,326
245
69
1981 1
(4,290)
45,323
93,922
230
76
1982 1
(4003)
37,637
80,944
222
71
Average
Annua 1
Change
(percent)
(-6.60)
2.62
0.56
1.59
5.14
6. Flavor and
Perfume Chemicals
101
129
150
189
195
175 165
156
Source: 1TC, Synthetic Organic Chemicals: P.S. Production and Sales, except as noted.
* Data for the entire tar and tar crudes category are available only for 1975 and 1976.
Data for the tar portion of this category are available for other years and are shown In
parentheses.
** This value Includes miscellaneous end use chemicals and chemical products production.
*** From Textile Organon, January 1984.
**** This Is the average annual percent change fro« 1976 to 1931. The 1982 production figure was
not used due to a possible reporting error; see footnote *** to Table 2-i.
***** Total Includes tar production but excludes production of tar crudes.
6.41
7.
8.
9.
10.
11.
12.
Plastics and
Resins
Rubber Processing
Chemicals
Plastlclsers
Synthetic
Fibers***
Celluloslc
Fibers***
Miscellaneous
End-use Chemicals
and Chemical Products
Total***** i
24,868
279
1,352
5,875
749
149,197
29,680
384
1,587
6,615
841
7,689
| 176, 887
34,623
382
1,792
7,312
888
8,204
,190,091
38,878
366
2,096
7,768
905
9,572
,202,119
41,871
395
2,133
8,418
930
10,394
i 217, 811
38,186
291
1,784
7,874
806
10,642
,202,834
40,601
280
1,866
7,982
770
10,281
,205,786
38,313
232
1,411
6,442
584
22,145
,191,709
6.37
-2.60
0.61
1.32
-3.49
5.98****
3.65
-------
2-18
Table 2-10. OCPSF Production and U.S. Economic Trends
Year
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
GNP
(billions of
1972 dollars)
737
757
800
833
876
929
985
1011
1058
1088
1086
1122
1186
1254
1246
1232
1298
1370
1439
1479
1474
1503
1485
Change
in GNP
(percent)
2.2
2.6
5.8
4.0
5.3
6.0
6.0
2.7
4.6
2.8
-0.2
3.4
5.7
5.8
-0.6
-1.2
5.4
5.5
5.0
2.8
-0.4
1.9
-1.9
Manufacturing
Production
Index (HP I)
.654
.656
.713
.758
.810
.897
.979
.999
1.063
1.110
1.064
1.082
1.189
1.298
1.294
1.164
1.302
1.384
1.468
1.536
1.467
1.503
1.375
Change
in MPI
(percent)
2.2
0.3
8.8
6.3
6.9
10.7
9.1
2.1
6.4
4.4
-4.1
1.7
9.9
9.2
-6.3
-10.1
11.9
6.3
6.1
4.6
-4.5
2.4
-8.5
OCPSF
Production
(billion
pounds)
170.2
149.2
176.9
190.1
202.1
217.8
202.8
205.8
191.7
Change
in OCPSF
Production
(percent)
-12.3
18.6
7.5
6.3
7.8
-6.9
1.5
^6.8
Sources: DRI and ITC, Synthetic Organic Chemicals; U.S. Production and Sales.
Profitability in the two OCPSF groups has risen and fallen with production
in those groups and appears to be on a general downward trend. Overall chemical
industry profitability and U.S. manufacturing profitability have shown the same
characteristics, though the downward trend is not apparent. Prior to 1980, the
profit on sales performance of the chemicals industries were consistently better
than average for all U.S. manufacturing, reflecting its higher capital
intensity. Profits on net worth, however, have fluctuated about the U.S. average,
2.4.3 Price, Capacity Utilization and Capital Spending Trends
Price histories for the period 1975 to 1982 for the twelve OCPSF product
groups are presented in Table 2-13. These constant dollar prices have generally
remained stable during this period. Most prices rose slightly in
-------
2-19
Table 2-11. Profit on Sales Trends (percent)
Before-Tax Profit on Sales After-Tax Profit on Sales
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
282
6.1
8.2
8.1
8.6
6.0
7.8
3.2
4.8
3.7
3.6
3.6
2.5
286
4.8
6.0
8.3
9.8
9.1
9.9
6.5
5.7
5.7
5.3
5.2
2.6
Chemical
Manufacturing
5.3
5.3
5.9
6.9
7.2
6.6
6.7
6.0
6.0
6.2
NA
NA
NA
All
Manufacturing
4.5
4.7
5.0
5.7
5.2
4.4
5.1
5.0
5.2
5.5
NA
NA
NA
Sources: Before tax-profit data are from Robert Morris Associates.
The 282 group covers SIC classes 2821, 2823 and 2824. The 286
group covers SIC classes 2861, 2865 and 2869. After-tax profit
data are from the Citibank Monthly Economic.Letter.
Table 2-12. Profit on Net Worth Trends (percent)
Before-Tax Profit on Net Worth After-Tax Profit on Net Worth
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
282
18.2
25.6
32.0
29.7
20.9
27.9
22.5
25.3
24.0
18.8
23.4
15.4
286
14.8
16.1
24.1
36.9
30.6
32.6
26.5
22.6
24.5
25.9
20.8
13.5
Chemical
Manufacturing
9.5
9.7
11.3
15.2
18.8
15.8
16.1
14.3
14.9
17.3
NA
NA
NA
All
Manufacturing
10.1
10.8
12,1
14,9
15.2
12.6
15.0
14.9
15.9
18.4
NA
NA
NA
Sources: Before tax-profit data are from Robert Morris Associates.
The 282 group covers SIC classes 2821, 2823 and 2824. The 286
group covers SIC classes 2861, 2865 and 2869. After-tax profit
data are from the Citibank Monthly Economic Letter.
-------
2-20
Table 2-13. Price Trends by OCPSF Product Group
(1972 Dollars per Pound)
P r od uc t
Gr oup
1. Tar and Tar Crudes*
2. Cyclic Int.ermediat.es
3. Miscellaneous Cyclic
and Acyclic Chemicals
4. Dyes
5. Organic Pigments
6. Flavor and Perfume
7. Plastics and Resins
8. Rubber Processing
9. Plasticisers
10. Synthetic Fibers
11. Cellulosic Fibers
12. Miscellaneous End-Use
Chemicals and Chemical
Products
Sources: ITC, Synthetic
Kline Guide to the Cheniical
U.S. Industrial Outlook.
1975
.041
(.028)
. 17
-
1.81
3.49
1.38
.26
.81
.28
.52
.77
_
Organi
| 1976
.039
(.025)
. 17
.15
1.87
3.63
1.33
.26
.83
.29
.51
.71
.54
1
1977
NA
.16
.14
1.94
3.33
1.38
.26
.84
.27
.54
.71
.48
c Chemicals:
Industry, 1980; and
Year
| 1978 | 1979 |
NA
. 15
.14
2.09
3.31
1.00
.25
.84
.27
.51
.65
.50
|
U.S.
U.S.
NA
.19
.15
2.02
3.45
1.07
.26
.75
.28
.49
.72
.46
1 1
Product! on
Department
1980
NA
.20
.16
1.95
3.33
1.10
.27
.86
.31
.50
.80
.40
and
I 1981
(. 10)
.20
.16
1.81
3.32
1.09
.24
.34
.29
.51
.83
.43
1
Sales;
1 1982
(.06)
.17
.14
1.55
3.06
1.21
. 23
.33
. 27
.51
.80
.42
1 1
Average
Annual
Change
( percent)
(11.50)
0. 00
-1.14
-2.19
-1.86
-1.86
1.74
0.35
-0.52
-0.23
0. 55
-4. 10
of Commerce,
-
* Data for the entire tar and tar crudes category are only available for 1975 and
1976. Price data for tar alone are available for 1981 and 1982. These values are
shown in parentheses.
-------
2-21
1979 then fell from 1980 to 1982. The 1982 prices are equal to or lower than
the 1975 prices for all product groups except cellulosic fibers, rubber
processing chemicals and coal tar—the three groups with the smallest
production growth over this period. The sharpest price reductions between
1975 and 1982 are found in dyes, organic pigments, flavor and perfume
chemicals and miscellaneous end-use chemicals. Each of these groups has had
average price reductions in excess of 1.8 percent per year over the period.
Table 2-14 compares these price trends to production, annual capacity,
capacity utilization, and new capital expenditures for several of the product
groups. While industry experts interviewed by Chemical Week* have
acknowledged that overcapacity exists in most sectors of the chemicals
industry, and that industrywide capacity utilization will remain under 70
percent for the next few years, the data in Table 2-14 show that some product
groups in this study have a capacity utilization rate closer to 80 percent.
Capital expenditures have not diminished but they have shifted from funding
new capacity to automating and streamlining the existing facilities.
2.5 Employment and Productivity
The OCPSF industry employed about 267,000 persons in 1982. This number
is roughly 1.5 percent of total U.S. manufacturing employment. Tables 2-15
and 2-16 present employment and productivity trends, respectively, between
1972 and 1982 for the five OCPSF SIC groups.
Table 2-15 shows that employment in the two fiber groups (SIC 2823 and
2824) decreased after 1974, while employment in the other three groups (SIC
2821, 2865 and 2869) rose to a peak in the 1977 to 1979 period, and then fell.
The latter three SIC groups all showed employment increases over the decade.
As presented in Table 2-16, productivity of employees in two groups,
Plastics and Resins (2821) and Synthetic Fibers (2824) showed increased
productivity over the decade. The productivity of synthetic fibers producers
more than doubled as it increased from £37,700 per employee in 1972 to $83,000
per employee in 1982 (both values are in 1972 dollars). The other three SIC
groups showed productivity reductions over the period. The largest reduction
was in SIC 2865, Cyclic Crudes and Intermediates, where productivity declined
from $82,700 in 1972 to $54,700 (in 1972 dollars) in 1982.
2.6 Foreign Trade
The OCPSF industry is one of the largest exporting industries in the
U.S. In 1981 the five SIC groups which are included in the OCPSF industry
exported $10,512.1 million, or 5.7 percent of the total U.S. manufactured
products exports of $184,219 million. OCPSF imports were $2,765.7 million or
1.6 percent of total U.S. imports of manufactured products of $171,355
million.
* Chemical Week, April 13, 1983.
-------
2-22
Table 2-14. OCPSF Price, Capacity Utilization and Capital Spending Trends
Year
SIC 2821
1975
1976
1977
1978
1979
1980
1981
1982
SIC 2823
1975
1976
1977
1978
1979
1980
1981
1982
SIC 2824
1975
1976
1977
1978
1979
1980
1981
1982
SIC 2865 and
1975
1976
1977
1978
1979
1980
1981
1982
Sources: ITC
of Commerce,
estimates.
Average
Price
(1972
dollars/1 b. \
.26
.26
.26
.25
.26
.27
.24
.23
.77
.71
.70
.65
.72
.80
.83
.80
.52
.51
.54
.51
.49
.50
.51
.51
SIC 2869
.17
.17
.16
.15
.19
.20
.20
.17
, Synthetic
Capacity Capital
Production Capacity* Utilization** Investment
(Ibs x 109) (ibs x 109) (percent) (current
) dollars x 106)
24.9
29.7
34.6
38.9
41.9
38.2
40.6
38.3
.75
.84
.89
.90
.93
.81
.77
.58
5.9
6.6
7.3
7.8
8.4
7.9
8.0
6.4
117.7
139.8
147.3
154.6
166.6 '
156.0
156.4
146.4
Organic Chemicals
Census of Manufactures; DRI;
NA
40.2
45.5
50.6
50.9
52.9
55.5
NA
1.24
1.19
1.06
1.09
1.11
.91
.90
.89
8.4
9.1
9.35
9.56
9.78
9.63
9.7
9.33
NA
193
204
212
212
228
230
NA
NA
73.9
76.1
76.9
82.3
72.2
73.2
NA
60.5
70.5
83.5
83.3
83.9
88.7
85.7
65.2
69.8
72.6
78.2
81.3
86.0
81.8
82.3
69.0
NA
72.3
72.2
73.0
78.4
68.4
68.1
NA
: U.S. Production and Sales; U
Textile Organon,
January 1984;
637.8
746.4
895.2
972.4
1077.1
1377.3
904.2
NA
69.9
41.6
29.3
32.7
83.7
83.2
111.8
NA
700.9
534.2
338.5
487.5
448.7
503.2
444.5
NA
2107.2
2652.4
3605.7
2792.8
2839.8
2907.6
3237.7
NA
. S. Department
and EPA
* Capacity values for SIC 2821 and 2865/2869 are derived from production data and
capacity utilization estimates.
** Capacity utilization estimates for SIC 2821 and 2865/2869 are developed from DRI
capacity utilization data covering 80 percent of SIC 2821 and 60 percent of 2865/2869.
-------
2-23
Table 2-15. OCPSF Employment Trends
(thousands of persons)
SIC Employment Type | 1972 | 1973 | 1974 | 1975 | 1976 | 1977 | 1978 | 1979 | 1980 | 1981 | 1982*|
2821
2823
2824
2865
2369
All
Total Employees
Production Empl.
Total Employees
Production Empl.
Total Employees
Production Empl.
Total Employees
Production Empl.
Total Employees
Production Empl.
Total Employees
Production Empl.
54.8
35.0
17. 1
14.4
78.2
58.4
28.2
18.7
102.4
64.5
280.7
191.0
1
54.4
35.0
16.7
14.3
81.3
61.5
29.5
19.0
102.8
66. 1
285.2
195.9
1
57.7
37.6
20.5
16.2
80.9
60.5
27.6
18.4
102.5
65. 6
289.2
198.3
1
54.3
34.0
15.9
12.0
70.2
51.0
27.8
17.9
104.9
64. 8
273.1
179.7
56.2
36. 4
16.7
12.8
69.3
50.2
27.8
17.9
109.3
68.7
279.3
136.0
1
57.2
36.7
16.0
12.6
74.0
54. 8
35.7
23.4
112.3
70. 7
295.2
198.2
1
58. 4
37.6
15.7
12.5
72.3
54. 0
35.5
22.0
128.6
62.3
310.5
188.9
1
60. 3
38.4
17.0
13. 6
70.8
52. 7
32. 4
21. 1
115.9
71.8
296.4
197. 6
58.8
36.6
16. 1
12.7
65.3
47.7
33.7
21.4
117.2
70. 8
291.1
189.2
1
57.6
35.3
15.6
12.2
58.0
39. 1
33. 2
21. 1
116.7
70. 1
231.1
177.8
1
56.3
34. 4
15.0
11.4
54.7
36.4
31.0
20. 0
110.0
66.0
267.0
168. 2
1 1
Source: U.S. Department of Commerce, Census of Manufactures, except as listed.
• 1982 data are estimated by the Bureau of Industrial Economics for the U.S. Department of
Commerce, 1983 U.S. Industrial Outlook.
Table 2-16. OCPSF Employment Productivity Trends
(.value of shipment per employee, in thousands of 1972 dollars)
SIC Group I 1972
1977
1979 I 1980 | 1981 | 1982*
2321
2823
2324
2365
2369
Source: U.S.
81.9
40.0
37. 7
82.7
72. 9
1 1
Department of
97.0
39. 1
69.4
66.3
77.0
1
Commerce,
107. 6
41.4
80. 3
73.3
76.9
99.4
40.5
82.0
58.8
67.9
106.8
39.8
91.3
60.7
69.2
1
94.0
31.7
83.0
54.7
65.0
1983 U.S. Industrial Outlook.
• The 1982 data are estimates.
-------
2-24
Exports are also an important part of the domestic industry, accounting for
15.8 percent of all OCPSF shipments in 1981. Imports represented 4.7 percent
of 1981 U.S. apparent consumption.
Tables 2-17 and 2-18 present OCPSF import and export trends by SIC group
over the last decade; Table 2-17 shows trends in the value of imports and
exports, while Table 2-18 shows how these values compare with OCPSF
shipments. For the industry as a whole, both import and export values have
grown over the 10 year period from 1972 to 1982, exports at a slightly faster
average annual rate (19 percent) than imports (14 percent). SIC Group 2869,
Industrial Organic Chemicals, is the largest group of exports, accounting for
44.6 percent of all OCPSF exports in 1982. This group also has the largest
value of imports, 48 percent of the 1982 industry total. For this SIC group,
the value of imports is increasing faster than exports, while for all others,
exports are increasing faster than imports. The value of both exports and
imports has increased over the decade in all SIC groups except the fibers
groups, SIC 2823 and 2824, in which imports are decreasing.
As shown in Table 2-18, both imports and exports as percents of shipments
value have grown over the decade from 1972 to 1982 for the OCPSF industry as a
whole, exports at a faster rate (six percent per year) than imports (two
percent per year). The table indicates that the ratio of exports value to
shipments value has grown over the past few years in all SIC categories except
Manmade Cellulosic Fibers (SIC 2823). Imports are also increasing in
proportion to shipments for all groups except Non-Cellulosic Fibers (SIC
2824). In relation to shipments, the largest exporting group is Cyclic Crudes
and Intermdeiates (SIC 2865) which exported 27 percent of shipments in 1982.
The export market is also important for SIC groups 2821, 2824 and 2869. As
compared to shipments the only group with a significant level of imports is
SIC 2865. The ratio of export value to shipments value is increasing at a
faster annual rate than imports for all SIC groups except 2823 and 2869.
This growth in exports reflects the overall growth of foreign markets.
However, the U.S. share of the world organic chemicals market has decreased
during this period, primarily due to the emergence of overseas OCPSF
producers, particularly in the oil producing, developing countries. The
feedstock cost advantages realized by some of the oil producing countries are
so great that new construction of basic chemical manufacturing plants in the
U.S. has come to a virtual halt. In particular, in Canada and the Middle
East there has been a capacity build-up for plastics materials production (SIC
2821) resulting from lower feedstock costs, which is adversly affecting the
U.S. market position. In addition, organic fibers (SIC 2823 and 2824) foreign
trade has been significantly affected by the strength of the dollar; when it
is strong, exports decrease. Foreign competition in large-volume,
commodity-type industrial organic chemicals (SIC 2865, 2869) has greatly
increased. The oil- and gas-rich developing countries have significant
competitive advantages over the U.S. due to the high energy costs and large
capital requirements for the production of these chemicals.
-------
2-25
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-------
2-26
Table 2-18. OCPSF Import and Export Trends,
As Percent of Value of Shipments*
Year
Sic Group
2821
2823
2824
•
2865
2869
Total
OCPSF
Industry
Source:
Import
Export
Import
Export
Import
Export
Import
Export
Import
Expor t
Import
Export
I 1972
1.2
9.8
3.6
4.3
4.5
3.8
10.8
14.9
2.2
10.3
3.6
9.6
| |
U.S. Department of
1977 |
0.9
8.7
7.2
5.7
1.9
5.5
9.1
15.7
2.7
10.3
3.3
10.1
|
Commerce
1979
1.4
12.9
8.5
2.3
1.1
11.1
9.7
25.6
4.0
15.5
3.6
15.2
, 1983
I 1980
1.4
14.7
7.1
2.0
1.1
13.8
9.6
24.4
4.2
16.4
3.7
16.9
U.S.
I 1981
1.4
13.0
5.9
2.3
1.4
15.3
10.9
22.6
4.3
15.2
4.0
15.8
1 i
1982
1.5
13.3
7.3
2.6
1.2
18.2
13.2
27.2
4.9
18.1
4.4
17.4
j
Average
Annual
Change
(percent)
2.3
3.1
7.3
-4.9
-12.4
17.0
2.0
6.2
8.3
5.8
2.0
6.1
Industrial Outlook.
* Imports are given as a ratio of import value to shipments value plus
import value.
-------
2-27
2.7 Financial Profile
Three financial ratios, Debt to Total Assets, Cash Flow to Debt (known as
Beaver's Ratio), and Return on Net Worth, are estimated for OCPSF firms as an
indication of their financial health. These ratios are calculated for 123 of
the OCPSF parent companies.* These are publicly-owned corporations for which
data are available from Standard and Poor's COMPUSTAT service. The 123 parent
companies own 596 of the 996 OCPSF plants.
Five years of data are available for each company. Data for the years
1978 to 1982 are used for 101 of the 123 parent corporations, while for the
other 22 corporations, available data are for the years 1979 to 1983. Nine
financial values from the COMPUSTAT data base are used to compute the Debt to
Total Assets, Beaver's, and Return on Net Worth Ratios for each company for
each of the five years. Section 3.6.2 in the methodology and Appendix 3E
present the method used to calculate the ratios.
Table 2-19 shows mean, median, 25th and 75th percentile values of the
three ratios for all companies for each year. The mean Beaver's Ratio for all
companies for all years is 25.5 percent while the median is 21.2 percent. The
lower quartile Beaver's Ratio (mean for all years) is 15 percent. It was
lowest in 1980 at 14.2 percent. The mean Debt to Total Assets Ratio is
50.6 percent for all years and the median is 51.7 percent. The upper quartile
Debt Ratio (mean for all years) is 58.1 percent. The ratio was highest in
1980 and 1981 at 58.8 percent. Mean Return on Net Worth for all companies for
all years is 21.4 percent and median is 22.2 percent. The 25th percentile
Return on Net Worth Ratio (mean for all years) is 14.6 percent. The lowest
value for Return on Net Worth is 6.6 percent, reached in 1983. The 1982 ratio
of 8.1 percent was slightly higher, and includes data from many more companies
than the 1983 figure.
The three parent company financial ratios have also been computed for four
OCPSF four-digit SIC groups (2821, 2824, 2865, and 2869).** The firms are
assigned to SIC groups by summing the value of shipments by SIC over all the
plants owned by each parent corporation and determining the SIC group with the
highest parent-wide value of shipments. Nine of the 123 parent corporations
with COMPUSTAT data cannot be assigned to SIC groups due to lack of necessary
§308 Survey data. Therefore, the number of companies included in the SIC
group ratio presentation is 114 rather than 123.
Table 2-20 shows the three financial ratios by SIC group for the years
1978 to 1983. In comparing the industry means and medians for the three
ratios with those for each SIC group, no particularly noteworthy trends are
* Parent companies are the.highest level of ownership for OCPSF database
plants. Other ownership level aggregations, such as direct owners, are used
in other sections of this report, but here, availability of data necessitates
the use of parent companies.
** SIC group 2823 is not included as no parent companies are assigned to
this group.
-------
2-28
Table 2-19. Financial Ratios for Parent Corporations
Calculated from COMPUSTAT Data
Year
Number of
Parent
Companies
Mean of
Ratios
(percent)
Standard
Deviation j
(percent)
Percentiles (percent)
25%
Median | 75%
Beaver's
Ratio
1978
1979
1980
1981
1982
1983
Mean of All
Years
Debt to Total
1978
1979
1980
1981
1982
1983
Mean of All
Years
Return on
Net Worth
1978
1979
1980
1981
1982
1983
Mean of All
Years
101
123
123
123
123
22
Assets Ratio
101
123
123
123
123
22
101
123
123
123
123
22
26.9
25.9
24.3
25.3
25.5
25.0
25.5
49.8
51.2
51.2
51.2
50.7
49.4
50.6
26.6
26.9
23.4
23.3
15.8
12.6
21.4
20.8
18.6
18.7
17.4
18.6
16.0
18.4
11.5
12.0
12.6
12.5
12.0
13.1
12.3
10.7
13.8
15.2
13.9
15.8
18.9
14.7
15.5
15.2
14.2
15.2
14.5
15.5
15.0
45.6
45.7
44.0
44.0
44.3
38.7
43.7
19.5
20.7
15.7
16.7
8.1
6.6
14.6
20.6
22.0
20.0
21
21
21
.7
.5
.4
21.2
50.9
52.3
52.4
51,
51.
51,
51.7
25.5
27.4
24.7
23.6
17.0
14.7
22.2
29.2
29.7
27.2
28.4
29.
31,
1
.5
29.2
56.7
58.1
58.8
58.8
58.2
57.8
58.1
32.8
32.7
32.0
32.2
26.8
24.3
30.1
Source: Standard and Poor's COMPUSTAT Service.
-------
V CO (NO
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2-31
visible. The mean and median ratios for each SIC group are above the
industrywide levels for certain ratios and below for others; no SIC groups
have means or medians consistently above or below the industrywide levels for
all three ratios.
When the guartile levels are considered, however, the results are somewhat
different. The lower quartile for the Beaver's Ratio and the Return on Net
Worth Ratio for SIC groups 2821, 2824, and 2865 are below the lower quartiles
for all firms, while the upper quartile Debt to Total Assets Ratio is higher
for these SIC groups than the upper quartile for all firms. The opposite is
true for SIC group 2869, which has lower quartiles higher than those for all
firms for the Beaver's and Return on Net Worth Ratios and an upper quartile
Debt to Total Assets Ratio lower than that for all firms.
For comparative purposes, the three financial ratios have been calculated
from data from Robert Morris Associates for SIC groups 282 (includes 2821,
2823, 2824) and 286 (includes 2865 and 2869). Appendix 2A presents the
variables, equations and data used in the calculations. Table 2-21 shows the
results. The values of the Beaver's Ratios and Return on Net Worth Ratios
derived from RMA data are generally consistent with the COMPUSTAT data
results. For example, for these two ratios, the lowest RMA-based ratio values
for any of the years shown are approximately equal to the mean lower quartile
COMPUSTAT-based values for all years. However, the Debt to Total Assets
ratios calculated from RMA data are higher than the COMPUSTAT-based values,
particularly for SIC 282. This difference may be explained by the fact that
RMA data is drawn from a wider cross-section of companies than COMPUSTAT data
(which come mainly from large, public corporations).
2.8 Firm and Plant Characteristics
Characteristics of the firms and plants in the OCPSF industry discussed
in this section are based on data from the §308 Survey. Information presented
includes: firm and plant data classified by SIC product group, including
numbers of plants per firm, production quantity and value; plant data
including sales quantity and value, employment, productivity capital
expenditures, discharge status and location; and firm ownership.data.
When aggregated for all plants in the OCPSF industry, the §308 Survey
data are generally consistent with other data on the organic chemicals
industry that have been used in earlier discussions in the industry profile,
as shown in Table 2-22. The closest agreement between aggregate §308 Survey
and other industry data is for OCPSF production (12 percent difference),
although the §308 Survey figure is lower. Both §308 Survey sales quantity and
value are higher than the comparable ITC data because an unknown quantity of
intercompany transfers of goods are included in the §308 Survey data. The
comparison with §308 Survey data on employment is hampered by the inability to
assign the survey data to production employment or total employment.
-------
2-32
Table 2-21. Financial Ratios by SIC Groups Using Data
From Robert Morris Associates
Debt to Total Profit Before Taxes/
Number Assets Ratio Beaver's Ratio Tangible Net Worth
of Firms (percent) (percent) (percent)
SIC 282
1978/79 116 61 25 25
1979/80 144 64 23 24
1980/81 127 59 18 19
1981/82 116 63 20 23
1982/83 126 60 17 15
Mean of All Years* 61.5 20.6 21.2
SIC 286
1978/79 105 56 16 23
1979/80 88 58 28 ' 25
1980/81 109 55 24 26
1981/82 77 57 26 21
1982/83 115 56 ' 20 14
Mean of All Years* 56.3 22.4 21.6
Source: Robert Morris Associates, Annual Statement Studies, for 1978-1983.
* Weighted by number of firms
-------
2-33
Table 2-22. Comparison of Aggregate §308 Survey Data
for the OCPSF Industry with Other Industry Data - 1982
Economic Indicator
S308 Survey Data* Other Industry Data
OCPSF Production (billion Ibs.) 171.9 (887)
OCPSF Sales Quantity (billion Ibs. ) 141.0 (887)
OCPSF Sales Value (billion $) 53.5 (887)
OCPSF Employment (thousands) 186.8 (970)
191.7**
97.4**
45.3**
267.0 (total
employees)***
168.2 (production
employees)***
* Aggregated for all plants in the OCPSF industry. Number of plants given
in parentheses.
** Total shown in Table 2-1 and taken from ITC, Synthetic Organic
Chemicals: Prices and Production for 1982. Publication No. 1422.
*** Total shown in Table 2-15 and taken from U.S. Department of Commerce,
Bureau of Industrial Economics, 1983 U.S. Industrial Outlook.
-------
2-34
2.8.1 SIC Groups
To facilitate presentation of the data in this section, both plants and
firms are classified by 4-digit SIC product group. This is done using the
following steps:
1) Chemical product production value is summed for each OCPSF SIC group
for each plant;
2) the plant is assigned to the OCPSF SIC group with the largest
production value for that plant;
3) chemical product production value is summed for each OCPSF SIC group
for each firm (from all plants owned by that firm); and
4) the firm is assigned to the OCPSF SIC group with the largest
production value for that firm.
In addition to classification by SIC group, plants are also categorized as
primary or secondary OCPSF producers. Primary producers are those with at
least 50 percent of their total production value in OCPSF products.
Table 2-23 presents the classification of firms and plants by SIC group
and the degree of specialization of plants in each group. SIC groups 2821
(plastics and resin materials) and 2869 (industrial organic chemicals) each
account for about forty percent of both firms and plants in the industry;
together, they include over 80 percent of the plants and of the firms. Many,
but not all, of the plants in these two SIC groups are primary producers. SIC
groups 2823 (cellulosic fibers) and 2824 (synthetic fibers) each account for a
very small percentage of the OCPSF plants and firms, but these plants are all
primary producers. Thirteen percent of the firms and plants in the OCPSF
industry are classified in the 2865 SIC group (cyclic crudes and
intermediates) and almost 90 percent of these plants are primary producers.
2.8.2 Single-Versus Multi-Plant Firms
Almost 70 percent of the firms in the OCPSF industry are single-plant
firms as shown in Table 2-24. Very few firms (33 or eight percent) own more
than five plants. As presented in the table, the mean plant size of plants
owned by multi-plant firms is larger than the mean size of plants owned by
single-plant firms.
2.8.3 Production Quantity and Value
Tables 2-25 and 2-26 present the distribution of production quantity by
SIC group for OCPSF firms and plants, respectively. These tables show both
OCPSF and total plant production. Tables 2-27 and 2-28 show mean, median and
total production quantity (for OCPSF and total production) by SIC group for
firms and plants, respectively.
-------
2-35
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-------
2-37
Table 2-2b. Distribution of 1982 Firm Production Quantity
by OCPSF SIC Group **
MAJOR sic SPOUP
HO SIC 2821 2823 2814 2865 2849 ALL
I NO. OF | NO. OF I NO. OF | NO. OF | HO. OF I HO. OF | MO. OF
I FIRMS PERCENT I FIRMS PERCENT I FIRMS PERCENT I FIRMS PERCENT I FIPMS PERCENT I FIRMS PERCENT I FIRMS PERCENT
OCPSF
PROOUCTION
i rais i
MISSIHG
0 TO 100
100 TO 500
500 TO 1000
1000 TO
5000
5000 TO
10000
10000 TO
50000
50000 PLUS
ALL
TOTAL
PRODUCTION
( TONS 1
MISSING
0 TO 100
100 TO 500
500 TO 1000
1000 TO
5000
5000 TO
10000
10000 TO
50000
SOOOO PLUS
ALL
59 100.0 •
• » 6
14
• • 11
» • 31
• • 28
» » 29
• » 31
59 100.0 150
18 30.5 •
3 5.1 5
1 1.7 9
Z 3.4 7
16 27.1 20
* 6.8 22
8 13.6 40
7 11.9 47
59 100.0 150
4.
9.
7.
20.
18.
•
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.3
3
,7
.7
19.3
20.
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7
0
*
3.3
6.
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.7
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14.7
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31.
7
3
100.0
* • • • •
• » • . 4
» • 1 6.3 14
• • » • 2 •
• « 6 37.5 11 :
• • t 12.5 5
1 L3.3 3 18.8 7
2 66.7 4 25.0 11
3 100.0 16 100.0 54
• » » » 2
• • 1 6.3 11
• • » • S
• * S 31.3 10
• • 2 12.5 S
1 33.3 4 25.9 8'
2 66.7 4 25.0 13
3 100.0 16 100.0 54
•
7.4
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' •
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*
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•
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103
6
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0
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Source: § 303 Survey.
* = No Values; ** = Values given are aggregates of only the plants covered by the 3 308 survey and
owned by the firms; data from other, non-surveyed plants owned by the firm are not included..
-------
2-39
Table 2-27 Firm 1982 Production Quantities and Values
and Employment by OCPSF SIC Group**
MAJOR OCPSF SIC GPOUP
2823 282* 2865
OCT5F PROD.
QUANTITY I TOHS )
MEAN
MEDIAN
TOTAL
OCFSF PROO.
VALUE (MILL »1
MEAN
MEDIAN
TOTAL
TOTAL PROD.
OVINTITY (TONS!
MEAN
MEDIAN
TOTAL
TOTAL FPCD.
VALL'E (HILL ()
MEAN
MEDIAN
TOTAL
OCPSF EMPLOYMENT
MEAN
MEDIAN
TOTAL
TOTAL EMPLOYMENT
MEAN
MEDIAN
TOTAL
• 98932.36
• 7092.50
» 14839854.02
" 55.67
* 6.98
• 8350.29
165217.7* 190528.33
3721.50 13583.00
6773927.15 28579249.73
23.1* 103.64
8.28 17.68
948.56 15546.11
34.92 142.01
9.00 28.25
2060.00 21300.85
79.31 320.00
21.00 56.50
4679.50 48000.60
53989.20
71705.00
161967.60
92.50
101.63
277.51
83157.53
95236.00
249472.60
95.18
103.65
285.54
1038.33
1014.00
3115.00
1041.67
1024.00
3125.00
656593.20
5862.25
10505491.16
731.81
29.21
11709.02
9825S4.71
9095.50
15720555.29
881.53
31.15
14104.55
3580.39
207.00
57286.25
424*. 83
231.50
67917.25
129685.40
2601.78
7013811.72
99.59
14.08
5378.03
261660.30
4029.50
14129655.96
164.1*
17.97
8863.70
230.46
46.50
124*4. 7S
525.89
55.50
28397.80
296800.48
6036.60
53424086.14
241.47
13.25
43463.90
57*427.67
15767.50
1033%980.il
354.91
23.25
642*3.98
500.97
39.50
90174.50
761.03
87.50
136984.85
213263.55
6000.00
85945210.65
171.66
11.32
69178.74
380292.43
10932.00
1688*9840.84
234.22
18.44
103992.44
403.42
33.00
186381.35
625.77
61.50
289105.00
Source: 3308 Survey.
* = No Values.
•* = Values given are aggregates of only the plants covered by the §308 survey and owned by the firms;
data from other, non-surveyed plants owned by the firm are not included.
-------
2-40
Table 2-28. Plant 1982 Production and Sales Quantities and
Values by OCPSF SIC Group
MAJOR OCPSF SIC GROUP
OCPSF PPOO.
OUUITITY (TOIISI
MEAN
MEDIAN
TOTAL
OCFSF PPCO.
VALUE (MILL t I
MEiN
MEDIAN
TOTAL
OCPSF SALES
QUANTITY (TONS)
MEAN
MEDIAN
TOTAL
OCPSF SALES
VALUE (MILL »>
MEAN
MEDIAN
TOTAL
TOTAL PBOO.
QMUITITY 1TOMS1
MEAN
MEDIAN
TOTAL
TOTAL PROD.
VALUE IMILL »l
MEAN
MEDIAN
TOTAL
TOTAL SALES
ou«rriTY ITONSI
MEAN
MEDIAN
TOTAL
TOTAL SALES
VALUE (MILL *)
MEAN
MEDIAN
TOTAL
HO SIC
*
•
*
.
•
"
,
2821
54401.
10561.
19203777,
43,
12.
15417.
50871.
.64
.70
.64
.68
.50
,45
.01
• 9679.00
•
.
•
•
103342. 73
7014.00
7750704.44
27.29
12.48
2047.05
46541.13
7486.50
3490585.10
26.07
12.29
1955.35
17957466.
39.
10.
13862.
93380.
20682.
32963283.
69.
23.
24466.
89181.
20354.
.65
27
.03
14
41
00
96
37
00
58
49
50
31481067.45
64,
22.
22921.
.93
19
.04
2823
106292
75352
637756
209
.75
.25
.50
.55
118.93
1257
81326
75927
487957
129
119
779
120876
119104
725261
210
122
.30
.30
.25
.80
.84
.88
.05
.92
.75
.50"
.89
.95
1265.33
95910
119679
575462
131
123
787
.47
.75
.80
.IB
.90
.08
2824
101463.
46000,
4362949
180
142.
7771
85420.
46433.
3673078.
166.
121.
7169.
103527.
47433,
4451686.
186.
142.
8023.
87491,
47800.
3762114,
172,
.94
.00
.37
.72
.72
.17
,44
00
,74
,74
,69
82
58
.00
11
59
72
22
,04
,00
.61
.55
124.17
7419,
.72
2865
109300.40
7263.00
12569546.14
80.43
19.55
9248.88
62491.40
6198.00
7186511.27
45.62
18.22
5246.05
210833.98
10601.00
24245907.71
122.05
25.69
14035.67
152862.44
8909.00
17579180.69
80.49
25.48
9256.62
2869
135895.
13600.
49171181.
95.
17.
354«3.
111298.
12350.
41180474.
71.
16.
26459.
266890.
25062.
98749560.
146.
29.
54178.
195939.
2301S.
72497503.
113.
ZS.
42064.
08
73
01
90
95
95
58
00
14
51
3*
11
70
00
12
43
02
85
20
00
13
69
35
32
ALL
96894. :6
12072.00
859
-------
2-41
OCPSF production is greater than 10,000 tons for about 40 percent of the
firms and for about 50 percent of the plants. About 50 percent of the firms
and over 60 percent of the plants produce more than 10,000 tons of total
(OCPSF and non-OCPSF) production. Median OCPSF plant production is 12,072
tons, and median total plant production is 20,335 tons. Mean OCPSF plant
production is 96,894 tons and mean total production is 175,557 tons. For SIC
groups, what is noteworthy is that median fiber plant size is significantly
larger than the median OCPSF plant. For firms, median OCPSF production is
6,000 tons while median total production is 10,932 tons. Mean OCPSF firm
production is 213,264 tons and mean total production is 380,292 tons. The
large differences between these median and mean production quantities reflects
the existence of some very large plants, whereas the majority of plants are
small and medium sized.
The difference between the median values for OCPSF and total plant
production indicates the level of diversification of the plants. Intermediate
chemical plants (SIC 2865 and 2869) show significant diversification, of which
a large part is upstream integration into the basic organic feedstocks' such as
ethylene, propylene, benzene, etc. Plastics plants (SIC 2821) also show
significant diversification which is partially due to fabrication of various
end-use plastics products. Fiber plants (SIC 2823 and 2824) show very little
diversification.
Similar conclusions can be drawn from the firm and plant production value
data shown in Tables 2-29 and 2-30. These data are presented by SIC group'for
OCPSF production value and total production value. Mean, median and total
production values (for OCPSF and total production) are shown in Tables 2-27
and 2-28, above, for firms and plants. The highest percentage of plants (36
percent) produce between 10 to 50 million dollars of total output. The median
plant OCPSF production value is 16.4 million dollars, whereas the median total
plant production value is 26.0 million dollars. Mean plant OCPSF production
value is 78.0 million dollars, and mean total production value is 108 million
dollars.
For firms, mean OCPSF production value is 171.7 million dollars and median
is 11.3 million dollars. Mean total production value is 234.2 million dollars
for firms and median total production value is 18.4 million dollars.
2.8.4 Sales Quantity and Value
Tables 2-31 and 2-32 present the distribution of plant sales quantity and
value by SIC group for OCPSF sales and total plant sales. Summary data on
mean, median and total sales quantity and value for plants by SIC group (both
OCPSF sales and total plant sales) are shown in Table 2-28, above. These
tables show results similar to the ones discussed above for plant production
quantity and value. This is due to the high correlation between production
and sales as shown in Table 2-33. These correlations do not vary
significantly among the different SIC groups.
Median sales quantities are 10,886 tons for OCPSF sales and 18,536 tons
for total plant sales. Mean sales quantities are 79,465 tons for OCPSF sales
and 134,497 tons for total plant sales. These sales quantities are generally
about 70 percent of the production quantities.
-------
2-42
Table 2-29. Distribution of 1982 Firm Production Value**
by OCPSF SIC Group
TABLE 2-29: DISTRIBUTION Of 1982 flttl FHOOUCTION VALUE" BY OCWF SIC SBOUP.
MA JOB SIC 6ftW
HO SIC 2821 282} tS24 2865 ;s<>9 ALL
I (10. OF I NO. OF I NO. OF | KO. OF I NO. OF | 110. OF I (10. OF
I FIRMS PERCENT I FIPHS PERCENT I FIRMS PERCENT I FIRrtS PERCENT I FIPMS PERCENT I FIRMS PERCENT I FIRMS PERCENT
PROO. VALUE
OT.ANICSIM-
MISSIHG
0 TO 1
1 TO 5
5 TO 10
10 TO 50
50 TO 100
100 TO 500
500 PLUS
ALL
PROO. VALUE
TOTALIMtl
HISSING
0 TO 1
1 TO S
5 TO 10
10 TO 50
50 TO 100
100 TO 500
500 PLUS
ALL
59 100.0 •
» • 19
• • 44
• • 22
* • 33
• « 13
• • 16
• • 3
59 100.0 150
18 30.5 •
3 5.1 13
13 22.0 27
6 10.2 16
13 22.0 43
3 5.1 21
3 5.1 21
« • 9
59 100.0 150
*
12.7
29.3
14.7
22.0
8.7
10.7
2.0
100.0
»
8.7
18.0
10.7
28.7
14.0
14.0
6.0
100.0
» • * *
.
• • 1 6.3
» • 3 18.8
1 33.3 7 43.8
.
2 66.7 1 6.3
• • 4 25.0
3 100.0 16 100.0
• * • •
* * • •
» • 1 6.3
• - • 3 18.8
1 33.3 6 37.5
• • 1 6.3
2 66.7 1 6.3
• « 4 25.0
3 100.0 16 100.0
•
4
13
6
16
6
6
3
54
«
4
11
6
17
6
6
4
54
.
7.4
24.1
U.I
29.6
11.1
11.1
5.6
100.0
*
7.4
20.4
11.1
31.5
11.1
11.1
7.4
100.0
.
33
28
17
51
10
21
20
ieo
.
20
26
16
50
14
31
23
180
.
18.3
15.6
9.4
28.3
5.6
11.7
11.1
100.0
.
11.1
14.4
8.9
27.8
7.8
17.2
12.8
100.0
59
56
66
48
108
29
46
30
46E
18
40
78
47
130
45
64
40
462
12.8
12.1
18.6
10.4
23.4
6.3
10. 0
6.5
100.0
3.9
8.7
16.9
10.2
28.1
9.7
13.9
8.7
100.0
Source: 3303 Survey.
* » no values;
** » Values given are aggregates of only the plants covered by the § 308 survey and owned by the firms;
data from other, non-surveyed plants owned by the firm are not included.
-------
2-46
Table 2-33. Comparison of 1982 Plant Sales to Plant Production*
Percent of All Plants
OCPSF Sales Total Plant Sales
Sales/Production Ratio Quantity Value Quantity Value
Less than 0.8 17 17 16 15
Greater than 0.8 83 83 84 85
Source: §308 Survey.
* Data in this table are based on an OCPSF industry total plant count of
1047 plants; the total plant count used in the rest of the analysis is 997.
The median sales values are 14.9 million dollars for OCPSF sales value
and 24.0 million dollars for total plant sales value. These median sales
values are about 90 percent of the median plant production values. Mean sales
values are 60.3 million dollars for OCPSF sales and 87.7 million dollars for
total plant sales. These mean sales values are about 70 percent of the mean
plant production values. Plants with lower sales to production ratios are
generally the larger plants. This is because these large plants are more
vertically integrated.
2.8.5 Production Costs
Total plant production costs include all expenses except the capital-
related ones and are calculated from §308 Survey data and labor cost data.*
Table 2-34 shows the distribution of plant production costs by SIC group as
well as the ratio of these costs to total plant sales value. Mean, median and
total values are shown in Table 2-35.
About 40 percent of the plants have production costs in the range of 10
to 50 million dollars, as is also true for total plant sales. The median
production cost level is 16.4 million dollars and the mean level is 63.0
million dollars. The comparable figures for total plant sales value median
and mean are 24.0 and 87.7 million dollars, respectively (see Table 2-28).
About 75 percent of the plants have production costs to sales ratios of
greater than 0.6.**
OCPSF production costs are not directly available from the §308 Survey.
Therefore, for use in the impact analysis, OCPSF production costs are
estimated as the product of total plant production costs and the ratio of 1982
OCPSF production value to total production value. Table 2-36 presents the
distribution of OCPSF plant production costs by SIC group.
* Labor cost is calculated using the employment data from the §308 Survey
and the hourly wage rate (including all benefits) from Chemical Week.
** The plants with cost/sales ratios of greater than one represent either
plant inventory increases or reporting errors.
-------
2-47
Table 2-34. Distribution of 1982 Plant Production Costs
by Major OCPSF S;IC Group
HAJOP OCFSF SIC GROUP
2823 2824
2869
I NO. CF I HO. CF I NO. OF | HO. CF I NO. OF I NO. OF I HO. OF
I PUms PERCENT I PLurrs PERCENT | PUM7S PERCENT I PUNTS PERCENT I PUNTS PERCENT I PUNTS PERCENT I PUNTS PERCENT
CC3TS
inlLLIC'l «>
r.issi.n
0-1
1-1
5-10
13-50
SC-1CJ
1CO-503 '
OVC» 530
All.
29
9
:s
12
27
3
4
1
110
26.4
8.2
22.7
10.9
24.5
2.7
3.6
o.»
100.9
2
19
47
60
151
M
35
1
353
0.
5.
13.
17.
42.
10.
9.
0.
100.
6
4
3
0
8
8
9
3
0
v « *
• • »
» > 24
• • 49
2 33.3 11 25
1 16.7 6 14.
3 50.0 20 46
m * •
6 100.0 43 100.
•
•
.7
.3
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.5
•
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«
5
25
13
49
5
15
3
115
4
21
11
42
4
13
2
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•
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.0
•
23
56
47
136
41
54
13
37»
*
6.2
15.1
12.7
36.8
11.1
14.6
3.5
100.0
31
56
155
116
376
94
131
18
997
3.1
5.6
15.5
13.6
37.7
7.4
13.1
1.8
100.0
Distribution of 1982 Plant Production Costs to Sales
Value Ratio by Major OCPSF-SIC Group
ruuoo OCFSF sic GROUP
28C3 2824
OF I l!0 OF | NO. OF I M3. OF I NO. OF I "0. OF I NO. OF
vrrs PERCENT I PUNTS PERCENT I PUNTS PERCEin I PUNTS PERCENT I PUWTS PERCENT I PUHTS PERCENT I PUHTS PERCENT
BATIO CF
pcro. c'cvrs
TO SALES
VUL1
NISSIM
0-0.2
0.2-0.4
0.4-0.6
0.6-0.8
0.8-1.0
OVER 1.0
AIL
42
3
7
16
23
6
13
110
38.2
2.7
6.4
14.5
20. »
5.5
11.8
1CO.O
7
27
IS
33
121
85
65
353
2.0
7.6
4.2
9.3
34.3
24.1
18.4
100.0
1
1
2
2
6
16.7
16.7
33.3
33.3
100.0
1
2
3
20
12
5
43
2.3
4.7
7.0
46.5
27.9
11.6
100.0
1
6
4
15
41
30
18
115
0.9
5.2
3.5
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35.7
26.1
15.7
100.0
2
26
27
57
106
71
79
370
0.5
7.0
7.3
15.4
29.2
19.2
21.4
100.0
52
63
55
125
314
206
182
997
5.2
6.3
5.5
12.5
31.5
20.7
18.3
100.0
Source: S 308 Survey Data
* = no values
-------
2-48
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2-50
2.8.6 Employment
Tables 2-37 and 2-38 present the distribution of firm and plant employment
by SIC group for both OCPSF-related employment and total plant employment.
Mean, median and total employment values are shown in Table 2-35, above.
Median plant OCPSF employment is 39 persons; OCPSF employment is generally
about one-half of total plant employment since the median total employment is
82 persons. Mean OCPSF employment is 192, and mean total plant
employment is 297. The highest percentage (33 percent) of plants employ 10 to
50 persons in OCPSF-related work. However, the distribution of total plant
employment is bimodal with the most frequent levels being 10 to 50 and 100 to
500 persons. This bimodality partially reflects the difference between
diversified and non-diversified plants and firms.
The fiber-related firms and plants (both cellulosic (SIC 2823) and
synthetic (SIC 2824)) have significantly larger than average employment
reflecting their larger size. On the other hand, plastics (SIC 2821) plants
have slightly lower than average OCPSF plant employment.
2.8.7 Labor Productivity
Table 2-39 presents the distribution of labor productivity by SIC group.
Productivity is calculated as dollars of production value per employee. Both
OCPSF and total productivity are estimated. Mean, median and total values are
presented in Table 2-35, above. The productivity of a majority of the plants
is between $100,000 and $500,000. The median productivity for the total plant
is £296,543. The productivity of the OCPSF portion of the plants is higher
than for the non-OCPSF portion since median OCPSF productivity is $353,201.
Fiber production (both cellulosic and non-cellulosic) is more labor
intensive (i.e. less productive) than either intermediate chemical or plastics
production. Median fiber productivity is $113,103 for SIC 2823 and $139,386
for SIC 2824. A summary of Table 2-39 is shown in Table 2-40.
2.8.8 Capital Expenditures
Table 2-41 presents the distribution of plant capital expenditures on new
and used equipment by SIC group. Mean, median and total values for capital
expenditures are shown in Table 2-42. Over 50 percent of the plants spend
less than one million dollars annually for capital expenditures. Only about
20 percent spend over 5 million dollars. Of the expenditures, the vast
majority are for new equipment as only about 20 percent purchase any used
equipment. Average expenditures are 6.5 million dollars for new equipment and
0.1 million dollars for used equipment.
Synthetic fiber plants (SIC 2824) and industrial organic chemicals plants
(SIC 2869) show significantly higher than average capital expenditures,
whereas those in SIC 2821 are slightly lower than average.
2.8.9 Plant Age
Table 2-43 presents the distribution of plant age by SIC group. Means,
medians and totals are given in Table 2-42, above. The variable used to
represent age is the age of the plant site and does not necessarily correspond
-------
2-51
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-------
2-55
Table 2-41. Distribution of 1982 Plant Capital Expenditures
By Major SIC Groups
2821
tOJOR OCPSF SIC GROUP
2823 2824
NO. OF I MO. OF I MO. OF I NO. OF I NO. OF I NO. OF I NO. OF
PLANTS PERCENT I PLAHTS PERCENT I PLANTS PERCENT I PLANTS PERCENT I PUKTS PERCENT I PLANTS FEBCENT I PUKTS PERCENT
CAP. EXPEND
OH NEW
EQUIP.
I MILLION t)
MISSING
ZERO
0-1
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5-10
10-50
50-100
100-500
OVER 500
ALL
CAP. EXPEND
ON USED
E3UIP.
(MILLION *)
NISSINS
ZERO
0-1
1-5
5-10
10-50
ALL
TOTAL
CAPITAL
Exrno-
ITL^ES
(MILLION <)
MISSING
ZERO
0-1
1-5
5-10
10-50
50-100
100-500
OVER 500
ALL
32
3
54
13
2
5
•
1
110
54
40
13
1
.
2
110
31
1
55
12
3
7
*
1
ft
110
29.1
2.7
49.1
11.8
1.8
4.5
•
0.9
•
100.0
49.1
36.4
11.8
0.9
•
1.8
100.0
28. 1
0.9
50.0
10.9
2.7
6.4
*
0.9
tt
100.0
24
17
214
61
19
16
2
•
•
353
94
200
56
3
•
*
353
19
14
219
64
19
16
2
•
•
353
6.8
4.8
60.6
17.3
5.4
4.5
0.6
•
.
100.0
26.6
56.7
15.9
0.8
.
.
100.0
5.4
4.0
62.0
18.1
5.4
4.5
0.6
•
•
100.0
» • 2 4.7 3 2.6
» » 3 7.0 4 3.5
2 33.3 8 18.6 64 55.7
1 16.7 7 16.3 23 20.0
2 33.3 9 20.9 11 9.6
1 16.7 13 30.2 8 7.0
• • 1 2.3 2 1.7
.
6 100.0 43 100.0 115 100.0
1 16.7 14 32.6 22 19.1
1 16.7 22 51.2 69 60.0
2 33.3 6 14.0 22 19.1
2 33.3 * • 2 1.7
• • 1 2.3 • •
.
6 100.0 43 100.0 115 100.0
• • 1 2.3 1 0.9
• * • • 2 1.7
2 33.3 11 25. 6 68 59.1
* • 8 18.6 21 18.3
3 50.0 9 20.9 13 11.3
1 16.7 13 30.2 8 7.0
.
• • 1 2.3 2 1.7
.
6 100.0 43 100.0 115 100.0
14
13
163
91
25
52
3
8
1
373
95
2C8
62
3
2
•
370
9
13
167
91
24
54
3
8
1
379
3.8
3.S
44.1
24.6
6.8
14.1
0.8
2.2
0.3
100.0
25.7
56.2
16.8
0.8
0.5
•
100.0
2.4
3.5
45.1
24.6
6.5
14.6
0.8
Z.Z
0.3
1CO.O
75
40
SOS
19*
68
95
5
12
1
997
290
5*0
161
11
3
2
997
61
30
522
190
71
99
5
II
1
117
7.5
4.0
SO. 7
19.7
6.8
9.5
9.5
1.2
0.1
1C9.9
28.1
5-.:
16.1
1.1
0.3
0.2
109.9
6.1
3.0
52.4
19.7
7.1
9.9
0.5
J.C
0.1
ICO. 9
Source: ^308 Survey.
* = no values.
-------
2-56
03
s
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-------
2-57
i-i in it it o
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it e rH in eo in it
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it IH in co in it
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(t CO -6 O CO 4) C-
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-------
2-58
to the age of any particular production line. The vast majority or about 85
percent of the plants are over 10 years old, and about 35 percent are over 30
years old (excluding missing values). The median age is 24 years old. Plants
in SIC 2865 and 2823 tend to be older, with 50 and 83 percent of these plants,
respectively, over 30 years of age. In contrast, plants in SIC 2824 are newer
on the average, reflecting the relatively more recent growth in non-cellulose
synthetic fibers as compared with plastics.
2.8.10 Discharge Status
Table 2-44 presents the distribution of discharge status by SIC code.
Overall indirect discharge status is the most common, involving about
one-third of the plants. Direct discharge is the second most common status,
involving about one-quarter of the plants. Other forms of disposal (such as
deep well, contract hauling and private systems) are used exclusively by about
10 percent of the plants, although nearly one-quarter of the plants employ
these methods to some degree. Fibers plants (both SIC 2823 and 2824) are more
likely to be direct dischargers than other plants.
Discharge status does not vary significantly according to primary vs.
secondary OCPSF producer classification. What is noteworthy is that nearly
all secondary plastics producers (about 80 percent) are either indirect
dischargers or use other than non-direct methods. This is due to the location
of such plants near their end-use markets in more urbanized areas.
2.8.11 Plant Locations
Plants in the OCPSF industry are concentrated in the North Central, Mid
Atlantic, Southeastern, and Southwestern states. EPA Regions II, III, IV, V
and VI contain 82.5 percent of the 997 plants. Regions I, VII, VIII, IX and X
which include the northeastern and western states, Hawaii and Alaska, only
account for 17.5 percent of the plants. New Jersey and Texas alone account
for 23 percent of the plants, with 119 and 109 plants, respectively. Table
2-45 presents plant distribution by state and by region.
2.8.12 Type of Firm Ownership
Table 2-46 below presents the distribution of firms by SIC group and by
type of ownership. Excluding the unknown values, private and public ownership
each account for about 45 percent of total firm ownership and foreign
ownership for nearly 10 percent. This distribution does not vary
significantly by SIC group.
Tables 2-47 and 2-48 present the distribution of firm OCPSF employment and
production value by type of ownership. From these tables, it is clear that
foreign owned and publicly owned firms are the largest, while private firms
are generally significantly smaller.
-------
2-59
w
&4
0
o
u
H
co
fet
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s
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w
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u
or
UJ
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rH rH
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U '
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U o: Or a tt
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B I O -J
OrH OO O OrHO HO MO
tl
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o c
^
2 II
0
to *
-------
2-60
Table 2-45. Location of OCPSF Plants.
Region 1
Maine
New Hampshire
Vermont
Massachusetts
Connecticut
Rhode Island
Region 2
New York
New Jersey
Puerto Rico
Virgin Islands
Region 3
Pennsylvania
West Virginia
Virginia
Delaware
Maryland
Number of
Plants
54
2
4
0
22
17
9
167
46
119
2
0
113
46
24
24
9
10
Region 4 187
Kentucky 21
Tennessee 19
North Carolina 41
South Carolina- 41
Mississippi 11
Alabama 23
Georgia 10
Florida 12
Region 5 185
Minnesota 3
Wisconsin 13
Illinois 55
Michigan 23
Indiana 15
Ohio 76
Percent of
All Plants
5.4
0.2
0.4
0.0
2.2
1.7
0.9
16.8
4.6
11.9
0.2
0.0
11.3
4.6
2.4
2.4
0.9
1.0
18.8
2.1
1.9
4.1
4.1
1.1
2.3
1.0
1,2
18.6
0.3
1.3
5.5
2.3
1.5
7.6
Number of
Plants
Region 6
New Mexico
Texas
Oklahoma
Arkansas
Louisiana
Region 7
Nebraska
Iowa
Kansas
Missouri
Region 8
Montana
North Dakota
South Dakota
Wyoming
Utah
Colorado
Region 9
California
Nevada
Arizona
Hawaii
Region 10
Washington
Oregon
Idaho
Alaska
TOTAL
169
0
109
3
8
49
28
1
7
5
15
8
1
0
0
0
3
4
68
68
0
0
0
18
8
10
0
0
997
Percent of
All Plants
17.0
0.0
10.9
0.3
0.8
4.9
2.8
0.1
0.7
0.5
1.5
0.8
0.1
0.0
0.0
0.0
0.3
0.4
6.8
6.8
0.0
0.0
0.0
1.8
0.8
1.0
0.0
0.0
100.0
Source: §308 Survey Mailing List.
-------
2-62
Table 2-47. Firm OCPSF Employment by Type of Ownership
Employment
Levels ( persons)
0-5
5-10
10-50
50-100
100-500
over 500
Number of Fi rms*
Type of Firm Ownership and Percent of
Firms at Bach Employment Level
Public
8
4
30
12
20
26
100
179
Private
23
13
39
12
11
2
100
168
Foreign
0
3
17
25
30
25
100
36
Unknown
25
12
43
8
10
2
100
60
All Types
16
8
34
13
16
13
100
443
Source: §308 Survey
* Excludes firms missing employment values.
Table 2-48. Firm OCPSF Production Value by Type of Ownership
OCPSF Production Value
(million dollars)
0-5
5-10
10-50
50-100
100-500
over 500
Number of Firms*
Source: §308 Survey.
Type of Firm Ownership and Percent of
Firms at Each Production Value Level
Public
21
10
27
8
19
15
100
164
Private
52
12
28
5
3
1
100
153
Foreign
6
12
26
18
23
15
100
34
Unknown
52
17
21
6
4
0
100
52
All Types
35
12
27
7
11
7
100
403
* Excludes firms missing production value data.
-------
APPENDIX 2A. Robert Morris Associates Data
used for Calculating Financial Ratios
Definition Robert Morris Values Used
1. Debt to Total Assets Ratio
Total Liabilities - (Total Liabilities+Net Worth*)-(Net Worth%)
Total Assets (Total Liabilitites + Net Worth*)
2. Beaver's Ratio
Cash Flow
Total Liabilities
Cash Flow
- Current Mature Lone Term Debt i (Cur. Mat. L/T/0%)
(Total Liabiiities+Net Worth X)-(Net Worth*)
3. Return on Net Worth
X Profit Before Taies
Tangible Net Worth Already Calculated by Robert Morris
Associates
See Tables 2A-iand2A-2for financial ratios using Robert Morris Data
and for raw data from Robert Morris Associates.
-------
2A-2
SIC
Year
2821
1978/79
1979/80
1980/81
1981/82
1982/83
285
1978/79
1979/80
1980/81
1981/82
1982/83
fable
Total
Liabilities
&Net Worth
(Percent)
100
100
100
100
• 100
100
100
100
100
100
-A-l. Financial Ratios using Robert
Morris Associates Data
Net Worth
(Percent)
39.4
36.0
40.6
37.1
40.4
44.4
42.1
45.4
42.6
44.4
Current
Maturity
L/T Debt
(Percent)
3.3
4.1
3.4
3.2
3.2
2.9
3.1
2.6
4.3
2.6
Cash Flow
to Current
Maturity
L/T Debt
(median)
4.5
3.6
3.1
3.9
3.1
3.0
5.2
5.0
3.5
4.3
Debt
Ratio
0.61
0.64
0.59
0.63
0.60
0.56
0.58
0.55
0.57
0.56
Beaver's
Ratio
0.25
0.23
0. 18
0.20
0.17
0.16
0.28
0.24
0.26
0.20
Pre-Tax
Profit/
Tangible
Net Worth
0.253
0.240
0.188
0.234
0.154
0.226
0.245
0.259
0.208
0.135
-------
2 A-3
Table 2A-.2. Robert Morris Data
MANUFACTURERS • PLASTIC MATERIALS & SYNTHETIC RESINS
SIC* 2821
Current Data
46(6/309/30/821 80(10/1/823/31/831
0-1MM V10MM 10SOMM 60 100MM ALL
32 71 18 6 126
72 62
32.1 27.3
21.6 22.2
.7 1.8
61.7 57.4
30.1 34.4
1.1 .3
7.2 7.8
100.0 100.0
10.3 8.9
3.8 3.1
21.8 216
4.7 5.6
7.5 2.6
48.2 41.8
118 16.4
1.0 3.3
39.0 38.6
100.0 100.0
100.0 100.0
69.6 78.5
30.4 21.5
26.5 17.6
3.9 4.0
1.1 1.5
2.8 2.4
1.8 2.2
1.3 1.5
1.0 1.0
1.2 1.3
.8 .9
. 6 .6
35 10.4 31 11.6
46 8.0 41 9.0
56 6.5 50 73
30 12.0 31 11.9
43 8.4 41 8.8
58 6.3 60 61
8.1 7.2
16.9 15.9
-102.6 1274
6.6 7.9
(27) 2.5 (62) 2.2
.8 1.4
8.8 11.3
(14) 2.0 (50) 3.2
1.5 1.5
.4 .5
.8 1.0
1.8 1.9
.8 .8
1.9 1.9
5.4 3.2
60.1 29.9
(31) 15.5 (68) 15.7
4.3 94
15.1 12.7
5.9 6.5
1.0 2.4
15.9 11.7
12.5 '7.0
4.6 39
3.2 2.9
2.5 2.2
2.0 1.7
1.6 1.6
(30) 2.3 (66) 2.6
35 34
1.2 .5
(21) 2.0 (28) 1.0
3.3 1.8
3.6 19
(18) 4.7 (26) 2.7
75 42
46040M 561292M
17287M 251616M
6.5
21.5
23.5
.9
52.4
36.9
4.8
3.9
100.0
6.6
30
13.9
5.2
1.5
30.2
23.2
2.7
43.9
1000
100.0
77.8
22.2
17.2
50
3.6
1.4
2.8
1.7
1.1
1.6
.9
.5
41 8.9
48 76
54 68
44 8.3
72 5.1
104 3.5
5.4
10.1
29.9
66
(16) 1.8
9
4.5
(12) 2.3
.8
.5
1.2
2.1
.6
1.7
3.9
24.6
(17) 7.3
-8.3
14.0
2.5
-1.7
6.0
4.8
2.9
2.1
1.7
1.2
2.2
(15) 2.5
3.9
615493M
396819M
65
275
22.3
1.4
57.7
3.2
15.9
2.7
40.4
1000
100.0
76.3
23.7
19.6
4.1
1.6
2.5
2.2
1.5
1.0
1.3
.9
.6
34 10.7
44 8.3
52 70
33 11.0
45 8.2
65 56
67
139
156.4
7.4
(108) 24
1.3
11.2
(79) 3.1
1.5
.5
.9
1.8
.7
1.6
3.4
30.7
(121) 15.4
6.4
13.6
6.5
1.7
12.9
6.5
4.2
2:8
2.2
1,7
1.7
(115) 2.5
3.5
.5
(55) 1.5
25
2.4
(44) 40
48
ASSET SIZE
NUMBER OF STATEMENTS
ASSETS
Cash It Equivalents
Accts. & Notes Rec. - Trade(net|
Inventory
All Other Current
Total Currant
Fixed Assets (net)
Intangibles (net)
All Other Non-Current
>V Total
\ LIABILITIES
v^A Notes Payable-Short Term
f fur. Mat.-L/T/D }
Accts. & Notes Payable -Vrade
j Accrued Expenses
\ ,, All Other Current
•x^"/\ Total Current
J \ Long Term Debt
"""•OM Other Non-Current
C Net Worth ^S
Total Liabilities & Net Worth
INCOME DATA
Net Sales
Cost Of Sales
Gross Profit
Operating Expenses
Operating Profit
All Other Expenses (net)
Profit Before Taxes
RATIOS
Current
Quick
Sales/Receivables
Cost of Sales/Inventory
Sales/Working Capital
EBIT/lnterest
fcash Flow/Cur Mat. L/T/oJ
Fixed/Worth
Debt/Worth
% Profit Before Taxes/TangibleN
^ Net Worth )
% Profit Before Taxes/Total
Assets
Sales/Net Fixed Assets
Sales/Total Assets
% Depr.. Dep.. AmortySales
% Lease & Rental Exp/Sales
% Officers' Comp/Sales
715567M 1938392M Net Sales (1)
3S38Q3M 1019525M Total Assets (1)
Comparative Historical Data
«/3o/7«. a/W7». a/so/so. a/io/it- 6-30-8?
3/31/7» 3/31/JO 3/31/J1 3/31/82 }.~1\ M
ALL ALL ALL ALL ALL
116 144 127 116 126
* % % % %
6.7 6.8 6.2 5.6 6 5
29.8 28.5 29.5 301 275
22.3 24.8 21.6 22.4 223
1.4 2.2 1.4 1.4 14
60.1 62.3 58.5 596 57.7
33.3 31.6 32.6 31.8 34.0
1.4 1.3 .9 1.1 1.1
5.2 4.9 8.0 7.6 7.1
100.0 100.0 100.0 100.0 100.0
8.0 8.7 8.3 84 8.6
3.3 4.1 3.4 3.2 3.2
179 20.4 19.2 19.7 202
6.6 6.5 5.7 6.1 5.3
4.1 44 3.2 3.2 36
39.8 44.2 39.7 40.6 41.0
18.4 17.7 16.4 18.7 159
2.4 2.1 3.2 3.6 27
39.4 36.0 40.6 37.1 40.4
100.0 100.0 100.0 100.0 1000
100.0 100.0 1000 100.0 100.0
76.2 75.8 76.3 768 76.3
23.8 24.2 23.7 23.2 23.7
18.0 19.4 18.8 18.2 19.6
5.8 4.8 5.0 5.0 41
1.0 1.1 1.3 1.4 1.6
4.8 3.7 3.6 3.6 2.5
2.2 2.1 2.1 2.2 2.2
1.6 1.5 1.5 1.6 1.5
1.2 1.1 1.1 1.1 1.0
1.3 1.3 1.3 1.3 1.3
1.0 .9 1.0 .9 .9
.7 .6 .7 .6 .6
37 10.0 35 10.4 40 9.2 36 10.2 34 10.7
47 7.7 46 7.9 49 7.5 47 7.7 44 8.3
62 5.9 55 6.6 59 6.2 58 63 52 70
29 12.6 34 10.8 33 11.2 29 12.4 33 11.0
SO 7.3 50 7.3 43 8.4 43 8.5 45 8.2
68 54 69 5.3 65 5.6 63 58 65 56
8.1 6.5 6.9 7.0 6.7
9.0 11.6 11.5 12.3 13.9
I T5 339 27-3 323 1564
/ A.2 7.8 8.7 7.6 7.4
/\ir ,/4.5 (115) 3.8 (105) 2.9 (101) 2.8 (108) 24
C 2.2 1.6 12 1.4 1.3
'-"^~ 7.4 6.7 7.7 79 11.2
(78) 4.5 (90) 3.6 (93) 3.1 (84) 39 (79) 3.1
2.0 1.5 1.5 2.1 1.5
.5 .4 .5 .5 .5
/ l8 .8 .7 1.0 9
/ /5 15 1.4 1.7 1.8
t^~/ S .8 .9 .8 .9 .7
/ C 1-5 1.6 1.4 1.8 1.6
^--> 2.8 2.9 2.8 3.5 34
41.8 39.4 32.2 35.7 307
(111) 25.3 (138) 24.0 (123) 18.8 (110) 23.4 (121) 154
12.9 84 7.7 64 64
16.4 15.3 13.8 13.9 136
10.2 8.2 8.0 7.3 65
4.1 2.7 2.1 15 1.7
10.2 12.7 11.3 13.4 129
68 7.9 6.6 74 65
4.2 4.6 4.3 43 42
2.7 2.7 2.8 29 28
2.1 2.2 2.1 22 22
1.6 1.8 1.5 1.7 1.7
1.3 1.5 1.4 13 17
(105) 2.3 (134) 2.1 (118) 21 (108) 20 (115) 25
3.9 34 35 32 35
.4 .5 .5 5 5
(45) 1.0 (72) 1.2 (58) 1.2 (46) 15 (55) 15
2.0 2.2 22 20 25
2.5 21 20 22 2<
(38) 40 (57) 4.0 (43) 3.6 (43) 35 (44) 40
8.3 76 65 47 48
1204793M 1482251M 2539528M 1984039M 1938392M
6B4930M 725973M 13S4301M 1106573M 1019S2SM
i Robert Morris Associates 1983
M = IthouMnd MM = •million
-------
2 A-4
Table 2A-2.(cont.)
MANUFACTURERS • INDUSTRIAL CHEMICALS
SIC* 2861 (65.69)
Current Data
61(6/30-9/30/82) 64(10/1/823/31/83)
0-1 MM 1 10MM 10-SOMM 60-100MM ALL
32 44 32 7 IIS
7.4 5.3
302 284
283 23.3
.5 1.6
66.4 58.6
26.8 32.8
1.5 1.1
5.3 7.5
100.0 100.0
11.0 5.2
1.6 3.2
20.1 21.2
6.1 5.2
1.2 3.1
40.0 37.9
11.5 15.2
4.9 3.5
43.7 43.3
100.0 100.0
100.0 100.0
67.9 76.7
32.1 23.3
26.8 20.3
5.3 3.0
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1.6 1.7
1.1 1.3
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.7 .7
30 12.3 30 12.2
39 9.4 41 9.0
54 6.8 47 7.7
41 8.9 31 11.9
60 6.1 46 8.0
96 3.8 69 5.3
5.5 8.1
11.6 11.6
38.2 21.8
13.5 7.8
(27) 2.3 (34) 3.3
1.5 .9
19.7 10.3
(13) 4.0 (22) 5.4
1.8 2.2
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1.1 1.2
3.7 2.1
48.1 29.3
(30) 24.6 (40) 13.1
7.3 4.0
15.2 10.9
7.0 7.1
3.3 1.8
26.1 12.9
12.4 74
4.3 4.1
3.5 3.1
2.4 2.5
1.7 1.8
.9 1.2
(27) 1.7 (36) 2.5
3.5 3.5
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(15) 20 (15) 9
3.4 2.0
48 2.2
(16) 58 (10) 35
7.7 4.2
4S088M 376423M
16328M 148423M
8.1
192
23.9
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8.3
100.0
6.2
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28 5
18.7
4.1
48.8
100.0
100.0
76.7
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18.6
46
.9
3.7
3.0
2.7
1.4
1.8
1.2
.8
35 103
46 79
55 6.6
34 10.7
69 5.3
94 3.9
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(27) 1.2
.1
159
(23) 2.9
.2
.5
.8
1.3
.6
.9
2.5
25.8
5.6
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136
2.0
-2.3
6.9
45
29
2.1
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(29) 2.5
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1438555M
810824M
% %
67
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1.1
57.8
$
lOOs^
2^6
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16.4 .,
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44 4
100.0
100.0
74 2
25.8
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1.7
1.2
1.4
1.0
.7
31 11.6
41 8.8
53 69
33 112
53 69
81 45
56
10.7
22.4
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(95) 2.3
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(61) 4.3
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.5
.8
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30.6
(109) 13.5
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5.9
.4
159
6.6
3.5
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21
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(97) 2.5
42
ASSET SIZE
NUMBER OF STATEMENTS
ASSETS
Cash & Equivalents
Accts & Notes Rec. • Tradefnet]
Inventory
All Other Current
Total Current
J Fixed Assets (net)
Intangibles (nat)
All Other Non-Current
^\ Total
\ LIABILITIES
T»«^pte} Payable-Short '[arm
f"Cur. Mat.-L/T/D ~")
Accts. ? Nbfes Payable - Trace
Accrued Expenses
\ . All Other Currant
. v-/\ Total Current
J \ Long Term Debt
^"""•^411 Qther Non-Current
( Net Worth V)
Total Liabilities i bet Worth
INCOME DATA
Net Sales
Cost Of Sales
Gross Profit
Operating Expenses
Operating Profit
All Other Expenses (net)
Profit Before Taxes
RATIOS
Current
Quick
Sales/Receivables
Cost of Sales/Inventory
Sales/Working Capital
EBIT/lnterest
.Cash Flow/Cur Mat. L/T/D )
Fixed/Worth
Debt/Worth
% Profit Before Taxas/TangibleX
^ Net Worth ^J
% Profit Before Taxes/Total
Assets -
Sales/Net Fixed Assets
Sales/Total Assets
* Depr.. Oep.. AmortVSales
(39) 1.2 % Lease & Rental Exp/Sales
2.5 1
34
(26) 4.9
6.7 !
% Officers' Comp/Saies
Comparative Historical Data
»/30/7«- a/30/7». a/30/BO. e/JO/BI. a/JO.15
3/31/7» 3/31/80 3/3t/Bl 3/31/B2 J-Tl/BJ
ALL ALL ALL ALL AIL
105 88 109 77 115
% % % % %
64 6.1 6 7 54 6.7
30.2 29.9 26.7 259 259
235 24.8 23.2 27.2 242
2.0 1.9 1.9 1.9 11
62.1 62.7 58.5 60.5 578
31.1 30.3 33.7 30.8 33.7
.6 1.3 .5 .8 1.3
6.3 5.7 7.2 7.9 7.2
100.0 100.0 100.0 100.0 1000
6.7 7.0 8.9 7.2 88
2.9 3.1 2.8 4.3 26
19.1 20.7 17.2 19.7 18.1
5.6 5.3 5.8 5.3 50
3.7 4.4 4.6 3.4 7.7
37.8 40.5 36.2 398 Sf 3
15.1 14.1 14.9 15.9 16. £
2.7 3.3 3.5 1.7 4.0
44.4 42.1 45.4 42.6 44.4
100.0 100.0 100.0 100.0 100.0
100.0 100.0 100.0 100.0 100.0
71.1 72.3 70.4 71.8 742
28.9 27.7 29.6 28.2 258
22.7 21.2 22.9 21.5 21.7
6.1 6.5 6.7 6.7 4.1
.4 .8 1.4 1.6 t.S
5.7 5.7 5.3 5.2 2.6
2.4 2.2 2.5 2.4 27
1.6 1.6 1.7 1.6 1.7
1.3 1.2 1.4 1.2 12
1.5 1.3 1.5 1.2 1.4
1.0 .9 1.0 1.0 1.0
.7 .6 .7 .6 .7
38 96 37 10.0 36 10.2 30 12.2 31 116
50 7.3 46 7.9 43 8.5 39 9.3 41 88
64 5.7 69 6.2 54 6.8 49 74 S3 66
36 10.2 33 10.9 33 10.9 35 10.4 33 11.7
65 66 56 6.5 64 6.8 69 6.2 63 6:
83 44 83 44 83 4.4 87 42 81 45
5.8 6.2 5.6 6.7 56
r "12 11.3 9.1 121 107
/ /9 28.2 16.7 242 224
A^/ ,/5.4 13.7 11.4 10.3 9.7
/ f 4.6 (60) 5.9 (82) 4.1 (62) 3.1 (95) 23
^> 2.5 2.4 1.6 18 1 0
7.1 10.9 16.2 8.3 141
(54) 3.0 (55) 5.2 (59) 5.0 (53) 3.5 (61) 43
1.6 2.1 1.6 20 15
r— 1 .4 .5 5 .5
/ H .7 .7 .8 8
, / /3 1.5 1.1 1.2 1.3
/~/ .7 .7 .6
f ^i> 1.3 1.6 1.2 1.3 1.1
*-"^ 2.1 3.1 ' 2.3 2.5 3 1
38.9 42.7 38.0 38.7 306
(102) 22.6 (86) 24.5 (105) 25.9 (73) 20.8 (109) 135
12.9 15.6 8.8 8.6 19
175 17.3 19.8 164 128
8.9 11.3 11.3 107 59
4.7 5.2 3.4 3.6 4
15.6 15.2 12.5 14.0 159
6.9 8.5 67 8.2 6 t
4.2 4.3 41 5.3 35
2.7 2.8 28 3.0 30
2.1 21 21 24 21
1.6 1.7 1.5 1.7 1 5
1.1 1.2 1.3 1.1 12
(94) 1.7 (80) 1.8 (100) 1.9 (67) 1.7 (97) 25
28 3.0 36 27 4 }
4 6 4 .4 <
(43) 1.0 (30) 1.1 (44) .9 (32) .9 (39) 1 2
1.7 1.8 1.8 2.2 2S
25 24 2.1 23 34
(34) 3.3 (29) 3.3 (34) 2.9 (18) 3.2 (26) 48
51 54 50 55 67
632116M 2492182M Net Sales (1) ! 1558052M 1336285M 2326629M 1995728M 24921B3U
483819M 1459394M Total Assets (•) 879649M 708268M 1438316M 728952M 14593MM
r Robert Morns Associate! 1983
M s Ithousjnd MM - (million
-------
Section 3
Economic Impact Assessment Methodology
3.1 Introduction
The economic impact assessment methodology consists of a baseline estimate
and a subsequent impact analysis. The baseline values provide a current
picture of the OCPSF industry and the economy, a basis against which the
potential impact of treatment costs can be assessed. Baseline estimates are
developed for the national economy and for the organic chemicals industry
including macro variables such as GNP, industrial production, various demand
indicators, organic chemicals industry production (demand), capacity
utilization and prices. Baseline values for each plant are calculated for
sales, production costs, profitability, current assets and liabilities, and
liquidation value of assets.
The assessment of the impact of treatment costs on a plant-level basis is
performed in a series of steps. First, a baseline projection is developed for
the industry as a whole and for each of the impact measures. Second, waste-
water treatment costs are estimated for each plant on the basis of its waste-
water generation, treatment-in-place, and subcategorization. Proposed control
options and costs are developed by EPA for all plants in the industry.
Monitoring costs and land costs (if any), are included in the treatment
costs. Full discussion of these costs appears in the Development (or costing)
Document. Summary information is available in Section 4. Next, the impacts
of the treatment costs are determined in terms of: (1) production cost
increases; (2) profitability reductions; and (3) liquidity changes. In
addition, a closure analysis is performed to predict plant or product line
closures. The closure analysis compares the current liquidation value of the
plant with the present values of cash flow over the life of the plant (with
treatment). From the closure predictions, the effects of the treatment costs
on employment, foreign trade, communities and small businesses are assessed.
Firm-level capital investment impacts are estimated for those multiplant firms
which own plants which are closure candidates. In addition, the general
financial health of all firms in the industry is assessed.
As discussed in the previous section, the Agency estimates there are
approximately 3,000 production plants in the OCPSF industry; 860 of these are
regulated and analyzed in the economic impact assessment.* Of these plants,
282 are direct dischargers, 355 are indirect dischargers and 223 are zero
dischargers. The industry is classified into 11 subcategories. All of the
plants being regulated are covered by the §308 Survey. Wherever appropriate,
data from the §308 Survey are used as a basis for assessing impacts on the
plants.
* Twelve additional plants are regulated, but as the survey data available
on them are questionable, they have been excluded from the analysis. Since
these 12 plants represent only one percent of the total number of regulated
plants in the industry, the conclusions drawn from the impact analysis carried
out on the remaining plants can be said to adequately estimate the impacts of
the regulations.
-------
3-2
For assessing the impact of new source performance standards, the Agency
has developed a series of model plants and treatment costs. Small and large
model plants are used for each subcategory. These model plants are
constructed with attributes based on those observed in the §308 Survey data.
Economic impact analysis focuses on the possible barriers, caused by decreases
in model plant profits and liquidity resulting from the regulations, to new
plants entering the market.
3.2 Data Sources
The economic impact analysis employs data from many sources at different
stages of the analysis. Figure 3-1 shows how these data sources are
integrated into the impact assessment. The important analytical components
are presented in the center of the figure. These are projected for the
baseline period (1982-1988) as discussed in subsection 3.3 and then, with the
addition of treatment costs provided by EPA, represent the impact analysis
which is described in subsections 3.4 through 3.12. Private data sources,
databases and models are shown on the left-hand side of the figure. On the
right hand side, the publicly available data sources are listed.
Of the various data sources, both public and private, only the data from
COMPUSTAT (which is included in the Meta Systems database and which is taken
directly from Form 10-K reports submitted by companies to the Securities and
Exchange Commission) and from the §308 Survey are provided directly by the
plants or firms covered. Data from other sources, even private ones such as
the DRI chemical Service and the Kline Guide, are primarily from publicly
available sources. The financial information provided by Robert Morris
Associates is drawn from company financial statements submitted by commercial
banks, but it is aggregated by line of business. Wherever possible and
appropriate in the analysis, data drawn directly from the regulated plants or
firms are used. However, in cases where the required information is not
directly available or suitable, aggregate or publicly available data are
used. The sources of data used in each step of the methodology are described
in the subsections which follow, but as three of them are of major importance,
they are also discussed in more detail here.
3.2.1 Meta Systems Database
By far the most important data sources used in the analyis are the Meta
Systems database, the §308 Survey, and the DRI Services. The Meta Systems
database covers 1,047 plants and their parent companies. The information in
the database includes the identification of public, private and foreign firm
ownership, financial data such as stock prices and various financial ratios
based on company income statements and balance sheets, and general industry
financial data. The main source of financial information for the database is
the Standard and Poor's COMPUSTAT Status Report for public firms, which is
supplemented by data from the State Industrial Guides and other directories
and guides for firms not included in COMPUSTAT. Appendix 3A describes the
Meta Systems database in more detail and summarizes the information it
contains.
-------
3-3
rig.3-1. Flowcnart of Information Flow and Analysis
/ DRI Database,
[ Macromodel &
I INTPUT-OUTPUT
\ Model
The U.S. Economy Forecasting
Real GNP
Industrial Production Index
Housing Starts
Sales of U.S. Made Car
Unemployment Rate
Consumer Price Index
Interest Rates
Household Formation
Public & Private Investment
Community Earnings a Employment
Other Demand Indicators
DRI Chemical
Services &
L.P. Model
and Kline Guide
I
^B.of Census, \
• OMB, BEA,
& BLS
The Chemical Industry Pro/lection
Values of Shipments
Chemical Production Index by SIC Group
Average Capacity Utilization Rate
Chemical Price Indices
Capital Spending
Quantity of Production
Concetration, Markets and Pricing
Earnings(Before and After Taxes)
Employment and Productivity
workers Earnings($/hour)
Export and Import Business
ITC,
B.cf Census
f Meta Database
/ &
Robert Morris
V Annual Studies
«•
Firms Level Analysis
Primary Producers:
Capitalization
Integration
Size Distribution
Financial & Operating Ratios
Secondary Producers:
Capitalization
Integration
Size Distribution
Financial & Operating Ratios
Small Business
I
i
-------
3-4
j
> HunusI Studies &
DRI Chemical
Services
Plants
.evel Analysis
Financial & Operating Perfomance
Employment
Costs of Materials & Services
Capaital Expenditure
Production Quantity & Values by
Product
Process Capacity
Wastewater Information:
Discharge Status
Volume
Pollutants
User Fee
Treatment in Place
Products Level Assessment
Production Levels
Price
values of Shipment
Production Costs
Processes
Markets and Pricing
End Uses
Price Elasticity of Demand
Demand Factors
New Sources Analysis
Capacity Expansion
Production Costs
Fig. 3-1. Flowchart of Information Flcv an
-------
3-5
3.2.2 §308 Survey
A survey of the entire organic chemicals, plastics and resin manufacturing
industry was conducted by EPA in 1983 and 1984. The survey collected data on
manufacturing and wastewater treatment. This survey was authorized by §308 of
the Clean Water Act, and carried out to obtain the necessary data to establish
wastewater effluent limitations for the OCPSF industry.
The §308 Survey provides selected economic and operating information at
the plant level. The economic data in the §308 Survey includes product types,
production quantities and values (sales), operating capacities, employment,
capital expenditures, and some production costs. Appendix 3B summarizes the
economic data included in the §308 Survey.
An actual or estimated organic chemicals sales value is required for each
plant included in the plant level impact and closure analyses. Estimates are
made for plants missing this and other necessary §308 Survey data as described
in Appendix 3C. Plants for which a sales estimate cannot be made, due to
insufficient §308 Survey data, cannot be included in the plant level
analysis, industry-wide impacts are assumed to be proportional to plant level
analysis results.
3.2.3 DRI Services
Because the DRI Services are so closely integrated into the economic
impact analysis, it is important to describe them in some detail here.
The DRI Services and data sources used in the analysis include:
o specification of the baseline for the macro environment;
o specification of the baseline for the industry;
o product data (and supplementary production cost data);
o foreign trade data; and
o estimation of announced capacity additions to processes.
Table 3-1 shows the DRI products or services which are used. They are briefly
described below.
The DRI macro model is the main source of data, projected for the
baseline, on the U.S. economy at the time of the effective date of the
regulation, 1988. The baseline year for the analysis is 1988, which is
forecast from 1982 data. The macro model forecasts the GNP and its
components, industrial production and price indices. Demand indicators such
as housing starts, automobile sales, employment rates, household formation and
private investment are also forecast.
-------
3-7
The DRI LP Model, along with DRI's six simulation models of the chemical
industry, determine the baseline conditions for the industry. The baseline
ties explicitly to the macroeconomic conditions which are forecast for the
baseline year (1988). The demand indicators developed by the macro model are
used as inputs to the LP and simulation models to forecast industrial
production for different sectors of the economy including the chemical
industry. Estimates of price, production, capacity utilization,
profitability, domestic consumption and foreign trade are developed from these
models.
These same models provide information at the product level. Price,
production, value of production, production costs and end use data for
specific chemicals or groups of chemicals can be obtained. Production process
information is also available.
DRI's foreign trade database includes data on the volume and location of
international trade of chemical products. Using these data, markets which are
important for foreign trade (e.g., declining exports or increasing imports)
are identified.
3.3 Baseline Estimates
3.3.1 Specifications of the Baseline
The baseline for the economic impact analysis is composed of six levels of
data, from the U.S. economy to plant specific information. Table 3-2 shows
the six levels included in the baseline and representative kinds of data for
each of them. The data are both historical and projected to the end of the
baseline period, 1988. Baseline specifications are presented in the last
subsection of the Industry Profile, Section 2. The following paragraphs
describe the types of data specified at each level, the data sources, and the
year(s) for which data are specified.
3.3.1.1 Macro Level. Data at the macro level include broad measures of
the U.S. economy such as real GNP and industrial production, as well as demand
indicators associated with economic growth, such as housing starts and
automobile sales. The economic database and macro-economic forecast of Data
Resources Inc. (DRI) provide the necessary information. It includes both
historical data showing trends over the past decade as well as projections
from the benchmark 1982, year through the baseline period to 1988.
3.3.1.2 Industry Level. The demand indicators specified at the macro
level provide a way to estimate production requirements from the chemical
industry sector which is the next level of information specified for the
baseline. Historical data on the chemical industry come from DRI, the
International Trade Commission (ITC) and the Kline Guide. The Census of
Manufactures data for 1982 are also available. Data at this level include
such items as value of sales, operating rates, and production.
Aggregated §308 Survey data on production, employment and earnings are
compared with the results of the DRI econometric models. Projections of
chemical industry level information are made by DRI for the baseline period.
-------
3-5
Table 3-2. Baseline for OCPSF Economic Impact Analysis
THE U.S. ECONOMY (Sources: DRI, B. of Census, OMB, BEA, BLS)
Real GNP
Industrial Production Index
Housing Starts
Sales of U.S. Made Cars
Unemployment Rate
Consumer Price Index
Interest Rates
Household Formation
Public and Private Investment
Community Earnings and Employment
Other Demand Indicators
THE CHEMICAL INDUSTRY (Sources: DRI, ITC, Kline Guide, B. of Census)
Values of Production
Chemical Production Index by Product Group
Average Capacity Utilization Rate by Product Group
Chemical Price Indices
Capital Spending
Quantity of Production
Concentration
Markets and Pricing
Earnings (Before or After Taxes)
Employment
Workers Earnings ($/hour)
Export and Import Business
FIRMS (Sources: Meta Systems Database (COMPUSTAT), Robert Morris Associates)
Primary Producers:
Capitalization
Integration
Size Distribution
Financial & Operating Ratios
Secondary Producers:
Capitalization
Integration
Size Distribution
Financial & Operating Ratios
-------
3-9
Table 3-2. Baseline for OCPSF Economic Impact Analysis
(continued)
PLANTS (Sources: §308 Survey, Robert Morris Associates, FTC)
Financial & Operating Ratios
Employment
Costs of Materials and Services
Capital Expenditure
Production Quantity by Product
Production Values by Product
Process Capacity
Wastewater Information:
Discharge Status
Volume
Pollutants
User Fee
Treatment in Place
PRODUCTS (Sources: §308 Survey, DRI)
Production Levels
Price
Value of Production
Production Costs
Processes
Markets and Pricing
End Uses
Price Elasticity of Demand
Demand Determinants
New Sources (Sources: §308 Survey, Robert Morris Associates)
Production Value
Wastewater Flow
Financial and Operating Ratios
-------
3-10
Aggregated §308 Survey data on 1982 annual investment for the plant as a whole
are used to determine the impact of additional treatment costs on the annual
capital expenditures of the industry for both new buildings and machinery and
used buildings and machinery.
3.3.1.3 Firm Level. Firm level data, including financial and operating
ratios and capitalization information for publicly owned firms, come primarily
from COMPUSTAT. These data are historical and are analyzed to determine
trends that are likely to continue through the baseline period. If. firm level
analysis is necessary for non-public firms then estimates are generated from
Robert Morris Associates and COMPUSTAT data.
3.3.1.4 Plant Level. Plant specific information including plant level
sales, profitability, liquidity, and production costs (without additional
treatment costs), serve as the baseline measures against which the impacts
from regulatory action are determined. The baseline year for the organic
chemicals industry economic impact analysis is 1988. The economic data from
the §308 survey are for 1982. The organic chemicals industry experienced a
recession in 1982. Based on DRI and other projections, the analysis assumes
that 1988 will be a better year economically for the industry than 1982.
Individual plant sales are projected for the 1988 baseline target year using
the following methodology:
n
SaleSp (1988) = SUM SaleSi (1988) (1)
where, i=1
SaleSp (1988) = 1988 plant level OCPSF sales
Salesi (1988) = 1988 OCPSF product level sales for product i*
n = number of OCPSF products in plant p*
and
(1988) = Salesi (1982) x CU (1988)/CU(1982) x (2)
CPI(1988)/CPI(1982) x IPD(1982)/IPD(1988)
where,
CU (198X) = aggregate 4-digit SIC group capacity utilization
rate in year 198X
CPI (198X) = chemical price index in year 198X
IPD (198X) = implicit price deflator in year 198X
Sales^(i982) = value of shipments from the §308 Survey by
8-digit SIC group
Equation (2) adjusts sales for product i for three factors expected to
change from 1982 to 1988. The CU ratio increases the capacity utilization
for each plant, i.e. the level of production in the plants. The CPI ratio
* OCPSF products are defined as 8-digit SIC product groups as reported in
the §308 Survey.
-------
3-11
inflates the price levels for those products to levels expected in 1988,
while the IPD ratio removes the expected inflation component; thus leaving
prices to reflect 1988 conditions, but stated in 1982 dollars. Therefore,
equation (2) predicts sales for product i for the plant running at a higher
production level in 1988 and adjusts for the expected decline in real price
levels between 1982 and 1988 (see Table 3-3). This relationship is first
calculated for each OCPSF product manufactured by a plant, and then the 1988
plant level sales is computed as the sum of the 1988 product level sales.
Thus, equation (2) assumes a constant value of production to sales ratio for
the plant. (See Appendix C for a description of how production values are
estimated.)
Sales values (= value of shipments) for 1982 by OCPSF 8-digit SIC
product group are from the §308 Survey. Aggregate capacity utilization
rates, by four-digit SIC for the year 1982, are estimated in the Baseline
(Section 5). Data for SIC 2821, 2865, and 2869 come from the DRI Chemical
Service database. For SIC 2823 and 2824, Textile Organon data are used.
Capacity utilization for the year 1988 is estimated from the historical
average over the period 1976 to 1982 (see the Industrial Profile). Such an
average approximates the long-term equilibrium value of capacity utilization
for each SIC group. For SIC groups 2821, 2865, and 2869, historical
utilization rates come from the DRI chemical Service database. The Service
covers about 80 percent of SIC 2821 and 70 percent of SIC's 2865 and 2869.
For SIC 2823 and 2824, data from the January 1984 Textile Organon are used.
The CPI and IPD indexes are forecast by the DRI macro economic model.
Table 3-3 summarizes the data for the five SIC groups of interest to this
impact analysis.
The other baseline conditions for plants in 1988 are specified with the
following assumptions which lead to conservative, but not unreasonable
estimates:
1. Total production costs are assumed to remain constant as reported in
1982. This assumption concerning total production costs is made
since adequate data necessary to forecast the relative changes in
the various production cost inputs are unavailable. It should be
noted that not all production costs are included in this measure
(see Section 3.3.4). Because of its incompleteness, this measure
was not used in estimating plant sales and, therefore, its
inadequacies do not compromise any other impact measures used in the
analysis except that directly related to production cost impacts.
2. Employment is also assumed to be the same as that reported for
1982. This assumption is reasonable because in recent years,
chemical companies have been putting a high priority on cost
reductions and on making operations more efficient. Furthermore,
due to the nature of the chemical industry, as production increases
following the 1982 recession, employment will not rise nearly as
much as the industry's output. Thus, with the emphasis of the
industry on accelerating productivity, it can be safely assumed that
productivity increases during the baseline period take the place of
employment increases. (This assumption is supported by DRI
forecasts.)
-------
3-13
3. Baseline profitability, cash flow, current assets, inventory, current
liabilities, fixed assets, depreciation and liquidation value are
estimated based on 1988 projected sales and the median values of
financial ratio data reported by Robert Morris for the 1976 to 1982
period, as follows.* As an example, profitability, defined as profit
before taxes, is calculated as:
PBT = A x Sales(1988) (3)
where,
PBT = profit before taxes
A = Ratio of profit before taxes to sales.
In order to estimate 'A1, the data from Robert Morris Associates for
the years 1976 through 1982 are used. An analysis of historical data
(see Table 3-4) results in no useful relationship between "A" and
sales; hence, "A" is estimated independently from Sales.
Table 3-5 illustrates the median values of some of these ratios for
two SIC groups and plant sizes and, as an example, Figure 3-2 shows
the variation of one such ratio, profit-before-taxes-to-sales, over
time for two organic chemicals SIC groups. Complete specification of
the baseline is provided in Section 5, Baseline.
The §308 Survey includes data for each plant on production costs,
employment, discharge status, treatment in place, production, and net sales.
Production costs and employment for 1982, reported in the §308 Survey, are
used as the baseline. Even though these data are not altered for the baseline
target year, they are not involved in estimating baseline sales (see above
methodology discussion) and, therefore, do not compromise any of the impact
analyses which are based on plant sales estimates. Baseline estimates for
items in 3, above, are derived from applying Robert Morris Associates (RMA)
data to each plant. RMA publishes financial and operating ratios for lines of
business including the SIC groups in the OCPSF industry (282 which includes
2821, 2823, and 2824, and 286 which includes 2865 and 2869). Data are
available for the average size plant in each SIC group and also for the
typical plant with assets less than $1 million. These data are then applied
to the plants in the OCPSF industry according to the organic chemicals sales
estimates for each plant for the 1988 baseline target year.
3.3.1.5 Product Level. Product data come from DRI, particularly the DRI
Chemical Service, the §308 Survey and ITC. They include information on
production, price and end uses. Historical data and projections for the
baseline period developed by the DRI LP Model are used.
3.3.1.6 New Sources. New sources sales estimates are made for each of
two model plants in each subcategory based on the relationship between flow
* FINSTAT and Federal trade commission data were also considered, but it
was determined that the data used are more current, complete and appropriate,
Section 8, Sensitivity Analysis, provides more discussion of FINSTAT data.
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3-14
Table 3-4. Results of Correlation Analysis, Sales vs.
Ratio of Profit Before Tax to Sales (RP3TS)
Sales vs. RPBTS j [ log(SALES) vs RPBTS \\ log(Sales vs log(RPBTS)
SIC 282
SIC 286
138
0001
.131
.0042
2 = .152
2 = .0016
Source: Robert Morris Associates.
Table 3-5. Median Values of Selected* Baseline Ratios
SIC 282
SIC 286
All Size
Companies
1. Profitability (profit
before taxes)/Sales 3.6%
2. Cash Flow (net income
plus interest plus
depreciation)/Sales 5.6%
3. Current Assets/
Sales 28.4%
4. inventory/Sales 10.6%
5. Current Liabilities/
Sales 19.3%
6. Liquidation Value
(working capital plus
20% fixed assets)/Sales 12.2%
Companies
with Assets
Less Than
1 Million
All Size
Companies
3.1%
4.9%
27.3%
9.6%
19.2%
10.4%
5.7%
6.6%
29.4%
11.5%
18.0%
14.3%
Companies
with Assets
Less Than
1 Million
3.5%
4.4%
26.2%
10.9%
17.0%
11.2%
Sources: Based on medians of Robert Morris Associates, Annual Statement
Studies for 1976-1982, using a corporate tax rate of 45 percent.
* See Section 5, Baseline, for a complete specification of all ratios.
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3-16
and sales found in existing sources. Profit and liquidity estimates for new
sources are based on the definitions used for the analysis of existing
sources and are developed from model plant sales estimates and Robert Morris
Associates data.
3.3.2 Profitability
Profitability provides a way to judge the ability of a plant to absorb
treatment costs in order to comply with the proposed limitations guidelines
and standards. Plant level profit is estimated using ratios of profit
before taxes to sales that represent the baseline condition. This is equal
to the "median" condition between 1976-1982 based on the Robert Morris
data.
3.3.3 Liquidity
Impacts on plant liquidity are used to determine whether the ability of
plants to meet short-term obligations is adversely impacted by the
regulations. Liquidity impacts are estimated by comparing the present value
of treatment costs over a five year period to the present value of cash flow
over the same period. Baseline cash flow is defined as net income plus
interest plus depreciation and is estimated from plant sales using financial
ratios from Robert Morris Associates.
3.3.4 Production Costs
Production costs included in the calculation are the expenditures for:
1. Direct Materials
2. Products bought and sold
3. Fuels
4. Purchased electricity
5. Contract work
6. Labor
These items are obtained from the §308 Survey for the year 1982. Since
these production costs are reported for the plant as a whole (except labor)
and not just for OCPSF production, they are allocated to OCPSF based on
proportional production levels. Labor cost is estimated as OCPSF employment
times an average wage rate. Because fixed costs and sales and
administrative expenses are not among the items listed, the production costs
are underestimated; consequently, the production cost increases are
overestimated. However, they are probably within an order of magnitude of
the true impacts. Any plants for which production cost data are unavailable
from the §308 Survey are not included in this impact measure.
3.3.5 Cost of Capital and Time Horizon
The cost of capital is required for two purposes: 1) to annualize
wastewater treatment capital costs; and 2) to discount future cash flows for
the liquidity and closure analyses. The analysis calculates a weighted
average cost of capital in both real and nominal terms. The method is
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3-17
briefly described below. A more detailed presentation of the method,
related concepts, and theory is found in Appendix 3D.
The real weighted average cost of capital, Real WACC, is defined as:
Real WACC « [ (1 + Nominal WACC)/(l+g) ] - 1 (4)
where,
Real WACC = weighted average cost of capital corrected for
inflation
Nominal WACC = unadjusted weighted average cost of capital
g = inflation rate
and
Nominal WACC = r(e/a) + y (1-t) (d/a) (5)
where,
r = after tax return on equity
e = firm equity
d = firm long-term debt
a = e + d = value of the firm
y = before-tax interest rate on debt
t = corporate marginal income tax rate (federal, state and local)
The mean value of Real WACC is used to discount future cash flows and
the mean value of Nominal WACC is used to annualize wastewater treatment
capital costs. These values measure return on total assets, both debt and
equity. To account for the perceived higher risk of small plants and the
more limited sources of funds available to them, an additional two
percentage points are added to the cost of capital (Nominal WACC) used for
annualizing treatment capital costs for small plants (those with assets less
than §1 million).* The Real (as opposed to Nominal) WACC is used in the
present value calculation of cash flow (for the liquidity and closure
analyses) consistent with the assumption that annual ca'sh flow is constant
over the planning period.
The time horizon (or planning period) is five years for the liquidity
analysis and ten years for all other calculations, based on average
equipment useful life expectancy.
3.4 Plant Level Impacts
The analysis of plant level economic impacts uses four impact measures:
change in profitability, change in liquidity, change in production costs,
and a comparison of the present value of future cash flows with the plant
liquidation value. Profitability, liquidity and production cost impacts are
assessed for the OCPSF portion of each plant.
Based on major bank lending policies.
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3-18
3.4.1 Profitability
Change in profitability due to treatment costs is calculated as the
ratio of annual treatment costs to baseline plant profit. When no price
change is assumed (i.e., zero cost pass through), the change in
profitability represents the maximum reduction in profits due to treatment.
The range, mean and median of this ratio are computed for all plants.
Profitability impacts are summarized by option and subcategory.
3.4.2 Liquidity Impacts
Liquidity impacts are measured as the present value of costs over the
first five years of operation compared to the baseline present value of cash
flow of a plant. In calculating the net costs of treatment it is assumed
that:
1) an investment tax credit of ten percent is allowed in the first year;
and
2) annual costs (O&M, sludge removal, etc.) are tax deductible. ;
Given these assumptions, the present value of treatment costs for the five
year period is computed as:
TACTOT = (1 - ITCP) X TCC + TL + PVF X (1 - CT) X TOM (6)
where,
TACTOT = present value of treatment costs for the five-year period
ITCF = investment tax credit factor = .10
TCC = treatment capital cost
TL = treatment land cost
PVF = present value factor =(!-(!+ R)~T)/R
R = real cost of capital
T = five years
CT = corporate income tax rate
TOM = annual treatment costs for O&M, sludge, etc. '
The ratio of the present value of treatment costs to the present value of
baseline cash flow over the five year period is then calculated as follows:
TACTOT / PVF X CFO (7)
where,
CFO = net income + interest expense + depreciation
Quartiles of this ratio are computed for all plants.
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3-19
3.4.3 Change in Production Costs
The increase in production cost is calculated for each plant and
summarized by option, subcategory and discharge status. The increase is
calculated as the ratio of annual treatment costs to baseline OCPSF production
costs. The range/ mean and median of this ratio for all plants are computed.
3.4.4 Closure Analysis
The plant level economic impact analysis includes a closure analysis which
is carried out for all plants. The purpose of this analysis is to identify
the plants or product lines that may close as a result of the promulgated
regulations.
A decision to close a plant is extremely complex and involves an array of
factors. Some of the more important factors are:
o Present and expected profitability of the plant;
o Current market or salvage value of the plant, i.e., the
opportunity costs of keeping the plant open;
o Required pollution control investment;
o Expected increase in annual costs due to pollution control
requirements;
o Expected product price, production costs, and profitability
of the plant'after pollution control equipment is installed
and operating; and
o Other major economic developments expected for the plant
(i.e., change in the competitive position, increase/decrease
in market growth).
In general a plant owner faced with pollution control requirements must
decide whether to make the additional investment in pollution control or to
liquidate the plant. A rational owner would decide to keep the plant if the
post-control cash flows are greater than the current liquidation value of the
plant. If the expected cash flows are less than the current liquidation value
of the plant, the owner would be better off selling the plant. Since the
plant will remain open for many years if the investment is made in pollution
control, the analysis takes into account the cash flow expected over the life
of the plant and equipment. The present value of future cash flows is
calculated by discounting the expected income stream by the weighted average
cost of capital. The plant will remain open if the present value of the
expected cash flows less the costs of investing in pollution control exceeds
the expected current liquidation value. If the expected cash flows are less,
the owner will sell the plant.
Liquidation value is estimated as 20 percent of a plant's net fixed assets
plus its net working capital. For the liquidation value estimation, the
Robert Morris line of business (SIC group) data are used to obtain three
ratios for each SIC group in the industry: current assets to net sales;
-------
3-20
current liabilities to net sales; and net fixed assets to net sales. The
ratios are then applied to each plant according to its size, primary line of
business and organic chemicals sales to obtain estimates of its net working
capital (defined as the difference between current assets and current
liabilities) and net fixed assets.
Robert Morris data are also used to estimate cash flow. Similar ratios
are developed and applied to each plant: net income to net sales and
depreciation to net sales. In addition, interest expense is estimated as a
percent of net sales based on analysis of RMA data. The corporate marginal
income tax is estimated as a national average of the sum of federal, state and
local rates, and treatment operation and maintenance costs are estimated
independently by EPA (see Section 4, Treatment Costs).
Using these estimates, the plant specific liquidation values are computed
as follows:
L0 we + 0.2 FA (8)
(CA-CL) + 0.2 FA (9)
where,
L0 = current liquidation value of the plant
WC = net working capital of the plant
CA = current assets of the plant
CL = current liabilities of the plant
FA = net fixed assets of the plant
0.2 = scale factor to reflect the fact that only a limited market exists
for the plant's used machinery and equipment
The present value (PV) of cash flow is calculated as follows:
n CF
PV (CF) = SUM r - Cl(l-tc) - L (10)
where,
n = life of the investment
i = year of the investment
CF = cash flow of the plant with treatment
CI = treatment costs capital investment
tc = investment tax credit
L = land costs for additional treatment facility
r = real rate of return on total assets (Real WACC)
The life of the investment, n, is assumed to be ten years. The real
weighted average cost of capital, Real WACC as defined in Subsection 3.3.6
above, is used for r. Ten percent is assumed for tc. The cash flow with
treatment is approximated as:
-------
3-21
CF = NI + I + D - (1-t) (OM) (11)
where,
NI = net income (see definition of tax rate, t, below)
I = interest expense
D = depreciation (adjusted by a factor to represent measurement in
real terms)
t = corporate marginal income tax rate, 45 percent (federal, state
and local; also used to estimate net income)
OM = operation and maintenance costs of treatment
For each closure candidate identified in the above analysis, a
case-by-case analysis is used to assess whether the closure is of the OCPSF
product lines only or of the plant as a whole. The case-by-case analysis
will consider the following factors: 1) if a high percentage of total plant
employment is engaged in OCPSF operations then the whole plant may be a
closure candidate; 2) if OCPSF production is small in relation to total
plant operations, then the OCPSF product lines may be shut down while the
rest of the plant continues to operate; and 3) OCPSF production, while
small, may be necessary to maintain total plant operations and, in such a
case, the firm may decide to continue to operate the OCPSF product lines at
a loss or may shut down the whole plant. Equations (1) through (11) can
also be re-examined to assess their appropriateness to the particular
plant. The purpose of the plant-specific studies is to make a judgment
concerning the likely outcomes for each closure candidate. It should be
noted that the number of individual OCPSF product line closures will be
underestimated using this method, since product line closures will be
predicted only if the plant is first flagged as a closure candidate, based
on total OCPSF production, in the present value analysis.
3.5 Industry-wide Impacts
Industry-wide impacts are the sum total of the plant level impacts,
aggregated for all 860 regulated plants included in the impact analysis.
Industry-wide impacts are assumed to be proportional to the impacts
calculated for the individual plants.
Treatment costs capital investment aggregated for all plants in the
industry is compared to total annual plant investment aggregated industry-
wide. It is calculated as the ratio of capital treatment costs to annual
investment for all plants and summarized by option, subcategory and
discharge status.
3.6 Firm Level Analysis
Two types of analyses are carried out to assess the economic impacts of
the treatment costs at the firm level. First, the impact of the capital
costs of treatment on the firm's annual investment is determined. This is
especially important for multiplant firms which may, when the individual
plant impacts are aggregated, be more heavily affected than is apparent when
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3-22
the plant impacts are considered singly. The purpose of this analysis is to
identify which multiplant firms are significantly impacted by treatment
costs and plant closures. The second analysis uses three financial ratios
to estimate the financial health of firms and to aid in the evaluation of
their ability to carry the treatment costs incurred by their plants. From
the ratio analysis, judgments are made concerning which firms are in a weak
financial position and may be severely impacted by treatment costs or unable
to sustain plant closures. This part of the analysis can only be carried
out for those firms for which financial information is available (generally
those that are publicly owned.)
3.6.1 Treatment Capital Cost to Firms' Annual Investment
Manufacturing plants are often treated organizationally as independent
profit and loss centers by the parent firm. That is, the plant manager is
responsible for developing a sales plan and a budget, and then carrying out
all activities (such as operating the facility, purchasing raw materials,
maintaining a work force, marketing the produc.t, etc.) so that a profit
results at year end. However, if capital investment is required for plant
modification or new equipment, the necessary funds may be appropriated from
a higher organizational level than the plant. This may be especially true
for firms which own plants that are closure candidates. Since it is
reasonable for the firm to consider financing the new investment, it is
useful to consider bow capital investment for treatment for all plants owned
by a firm compares to the annual capital expenditures of the parent firm.
Therefore, for firms which own plants which are closure candidates, the
wastewater treatment capital cost (aggregated for all plants owned by a
firm) is compared to the reported annual investment* for the firm for 1982
or, if unavailable, then the most recent year. This calculation is possible
only for those firms with annual financial reports accessible to the public.
For those firms which are not public and for which annual investment
data are not available, a proxy for firm-level annual investment is used.
This is obtained by summing the annual investment for all the plants owned
by the firm, reported for 1982 in the §308 Survey. These annual investment
proxies are then treated in the same way as the reported annual investment,
discussed above, to analyze treatment capital cost impacts.
3.6.2 Financial Ratios
For some firms included in this study, OCPSF production may be only a
small part of its total output. Therefore, it is difficult to assess the
impact of treatment costs on the firm except for the crude measure of
treatment capital costs to annual investment discussed above. However, it
is possible to gauge the relative health of a firm (without considering
treatment costs) by using financial ratios. Before describing the ratios,
it is important to note their limitations.
* Form 10-K, Securities and Exchange Commission, Washington, D.C.,
Moody's Industrial Manual, and COMPUSTAT data.
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3-23
3.6.2.1 Limitations. Generally, the use of ratio analysis is a series of
necessary, but not sufficient, tests. When an unsatisfactory ratio is found,
the factors involved are flagged for further investigation. The way that
further investigation proceeds depends a great deal on the access to accounts
and records usually considered to be proprietary by the firm. Even
experienced analysts sometimes have difficulty getting to the root cause of an
unsatisfactory trend revealed by a financial ratio.
The trends identified using the financial ratios represent the
relationships of two financial items but the information provided is rather
superficial since it does not shed light on the relative behavior of each of
the two items. As an example, assume a rise in a firm's 'current ratio"
(current assets divided by current liabilities—a basic indication of a
company's ability to meet payment obligations from current assets). It is not
sufficient to know the ratio increased; it is more important to know why. The
causes could be:
1. A rise in current assets and a decline in current liabilities;
2. A rise in both current assets and current liabilities but with
current assets moving at a faster relative rate; and
3. A decline in both but with a more rapid decline of current
liabilities.
In ratio analysis work, another important and most difficult problem is to
establish norms of satisfactory or unsatisfactory relationships. The quality
of a company's management, its policies, operations, competitive position, and
future plans must also be carefully considered. Information concerning many
of these factors are not as readily available as are financial statements. In
addition, the impact of economic, technological and environmental factors,
acquisitions and divestitures as well as many other factors must be considered
and may produce temporary distortions in financial ratios.
3.6.2.2 Recommended Ratios. As mentioned earlier, a ratio analysis used
to evaluate the financial health of a firm allows for an assessment to be made
of the ability of a company to pay for pollution control required by the
promulgated regulations. This part of the firm level analysis is performed by
calculating selected ratios using data from a company's financial
statements.* Financial ratios can be classified into five groups:
1. Liquidity ratios, which measure the firm's ability to meet its
short-term obligations;
2. Leverage ratios, which measure the extent to which the firm
has been financed by debt (i.e., bonds or long-term loans);
3. Coverage ratios, which measure the firms ability to meet its
fixed and long-term obligations from current revenues;
* COMPUSTAT data, Form 10-K reports and Moody's Industrial Manual.
-------
3-24
4. Activity ratios, which measure how effectively the firm is
using its resources; and
5. Profitability ratios, which measure the firm's overall manage-
ment effectiveness as shown by the returns generated on sales
and investment.
Table 3-6 presents a set of some of the most common ratios classified into
the five groups listed above. The following three ratios have been selected
from the twelve listed in Table 3-6 as being good predictors of financial
distress while requiring readily available data for computation.
o Debt to Total Asset Ratio
o Beaver1s Ratio
o Return on Net Worth Ratio
These ratios are computed for each firm for which there is financial
information in the database and then analyzed in the two stages described
below, industry comparison and trend analysis, to assess the firm's financial
health. Appendix 3E shows how these ratios are computed from COMPUSTAT data.
For each of the three ratios listed above, the firms that have that type of
financial problem are recorded. If a particular firm displays weakness in two
or more ratios, then it is judged to be in serious financial difficulty.
3.6.2.3 Industry Comparison. One way to evaluate a firm's financial
health is a comparison between the firm's ratios and those of the industry as
a whole. Firms which are performing poorly compared to the lower or upper
quartile for all firms in the industry may have more difficulty handling
pollution control costs and, in extreme cases, may be in real financial
difficulty. The lower quartile (mean for all firms) is used for comparison
purposes for the Beaver's Ratio and Return on Net Worth Ratio since firms
which have low values for these two ratios may be financially vulnerable. The
upper quartile (mean for all firms) is used for comparison purposes for the
Debt to Total Asset Ratio since a relatively high level of debt may indicate
financial weakness.
3.6.2.4 Trend Analysis. If a firm shows financial vulnerability in two
out of the three recommended ratios according to the above industry comparison
analysis, then the change in these ratios over a five year period is computed
and compared with industry-wide trends. This trend analysis provides a view
of how the firm's performance is changing over time; for instance, a strong
position may be eroding or a weak position improving. A comparison of company
trends with industry trends (medians for five years for all companies)
indicates how a firm's relative performance is changing over time and also
whether there are any influences which are affecting all firms in a similar
manner. Those firms whose position over time is improving at a faster rate
than that for all firms for any of the three ratios is not considered to be in
a weak financial position in terms of that ratio. Judgements made based on
the above two analyses are used to evaluate the preliminary conclusions drawn
from the closure analysis.
-------
3-25
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-------
3-27
3.7 Product Level Impacts
Two types of impacts are estimated at the product level: price increases
and production changes. Price increases are estimated by major product group
as the ratio of annual treatment cost to sales. Treatment costs are
allocated to product groups based on production. The treatment costs are the
sum total over all plants by control option. Likewise, production is the
aggregate of all plants by 4-digit SIC group. This analysis assumes a full
cost pass-through so the result is the maximum expected price increase.
3.8 Employment Impacts
Unemployment resulting from plant closures is estimated directly from the
plant closure analysis, based on plant level employment data from the §308
Survey. This level is assumed to represent total employment (OCPSF and
non-OCPSF), both production and other employees. Estimates of the employment
loss resulting from price increases and the subsequent production decreases
are beyond the scope of the economic analysis.
3.9 Community Impacts
Community impacts result primarily from employment and earnings losses.
Direct impacts from pollution control regulations such as plant closures or
output reductions can be expected to have indirect effects, both indirect
earnings impacts and indirect employment impacts. These indirect impacts are
defined as community impacts. Community impacts are analyzed in two stages.
The first stage analyzes the economic data for a geographic area in which the
proposed regulation is expected to close an OCPSF plant, to determine:
1) the population of the community or metropolitan area and the accessibility
of other populous areas; 2) the percentage of a community's population that
would be affected by the closure; and 3) the unemployment rate in the
community.
The significance of community impacts are determined by the ratio of
employment lost from plant or product line closures to the population of the
community. -Communities in which this ratio is .44 percent or greater are
considered to be significantly impacted, according to the following reasoning:
1) U.S. Department of Labor Statistics show that 99.3 million
Americans were employed in 1980. The U.S. Bureau of t;he
Census reported the population at 226.5 million that year.
Therefore, 43.8 percent of the population was employed.
2) It is assumed that a decline in employment of one percent
would be considered significant.
3) Therefore, a ratio of employment lost to community population
of 0.44 percent or greater would be considered significant, as
follows:
(.01) (43.8 percent) = 0.44 percent (12)
-------
3-28
The unemployment rate in the community and the accessibility of other
populous areas are also considered in determining the significance of the
impacts.
For purposes of this analysis, community is defined in terms of easy
commuting distance. Therefore, if the plant is located within a Metropolitan
Statistical Area (MSA), as defined by the U.S. Office of Management and
Budget, then the MSA population is used.* If a community is not located in a
MSA, but is in a township (mostly eastern states), then the township
population is used. If only the municipality's population is available, then
this is used. Population information is from the 1980 U.S. Census of
Population.
If impacts on a particular community are estimated to be significant,
then secondary effects are assessed by multiplier analysis, the second stage
of the analysis, discussed below. As mentioned earlier, direct impacts from
pollution control regulations such as plant closures, output reductions,
employment losses and earnings losses have indirect effects, arising both
from the reduction in demand for inputs by the affected plant and reductions
in consumption because of both direct and indirect losses in earnings.
Input/output analysis provides a straightforward framework for accounting for
these indirect effects as long as the direct effects are small and a number
of other important limitations are recognized.**
Given a change in final demand in a certain industry, an input/output
table can be used to determine the changes in demand (gross output) in other
industries that would arise from this change as well as the total effect of
changes in household consumption due to changes in income. The number
obtained is the "gross output multiplier." However, the change in gross
output is not a useful measure of impact because it results in substantial
double-counting. Only the change in value-added should be counted. The
measure of net impact used by the U.S. Department of Commerce, Bureau of
Economic Analysis (BEA) (and that adopted here) is earnings. The impact on
earnings can be calculated by multiplying the demand change in each sector by
the ratio of earnings to gross output in that sector and then summing
earnings changes over sectors.
This procedure is used by BEA .to calculate an earnings multiplier for
change in total earnings to changes in final demand for the organic chemicals
industry, as follows:
Change in Total Earnings (13)
Change in Organic Chemicals Industry Demand
* If it is part of a PMSA (Primary Metropolitan Statistical Area), then the
PMSA population is used.
** See U.S. Water Resources Council, Guideline 5; Regional Multipliers
(Industry Specific Gross Output Multipliers for BEA Economic Areas) prepared
by Regional Economic Analysis Division, Bureau of Economic Analysis, U.S.
Department of Commerce, Washington D.C., January 1977.
-------
3-29
This number includes direct and indirect earnings changes and represents a
national average. It is not feasible to use state-specific gross output
multipliers to obtain similar earnings/final demand multipliers for each state
because of their serious limitations. The total impact of a plant closure or
output reduction is just:
Change in Total Earnings = M x Change in Revenues (14)
where,
Change in Revenues = Change in Sales
and M is a BEA Earnings Multiplier. The BEA multipliers are estimated via
the Regional Industrial Multiplier System (RIMS) developed by the Regional
Economic Analysis Division of BEA. The five 4-digit SIC groups in the OCPSF
industry correspond to four of the RIMS "column industry" groups. Each
plant analyzed is matched to the appropriate RIMS column industry, which
determines the specific multiplier to use. Since the analysis is interested
in the total community impact, the total multiplier for that industry group
is used. The most recent multipliers available are based on 1977
input/output relationships. It is assumed that the basic relationships are
unchanged in 1982.
The direct impact on earnings at a plant can be estimated from §308
Survey employment data plus industry average hourly earnings information.
The indirect impact or community earnings impact is the change in total
earnings minus the direct earnings change.
Community employment impacts can be calculated from state average wage
rates applied to the indirect earnings changes estimated as described
above. Therefore:
Change in Indirect Employment = —
Change in Indirect Earnings/(Earnings/Employment^) (15)
where Earnings/Employment^ is the average wage rate for state i. This
allows the use of available state average wage rates.
3.10 Balance-of-Trade Impacts
The regulation may adversely affect the balance-of-trade depending on:
1) the extent of product price increases; and 2) the extent to which domestic
production losses are replaced by imports. The DRI foreign trade database for
the organic chemicals industry is used to identify which markets are suscept-
ible to change due to these factors. To analyze the potential balance-of-
trade impacts, two measures are used. One measure examines the percentage
loss in production of chemicals important to the U.S. foreign trade position
due to closures of product lines and plants. The second examines the price
increases resulting from the regulations to see if they will have a detri-
mental impact on the U.S. international competitive position.
-------
3-30
Production loss impacts are estimated as follows. Based on the foreign
trade baseline (see Section 5.7 of Chapter 5, Baseline), a list of chemicals
is compiled that are expected to experience low production growth due to
foreign trade issues. In addition, chemicals are included that have a
significant foreign trade component, but are expected to face strong growth in
domestic consumption. Three criteria are used in selecting these chemicals:
1) exports or imports are more than ten percent of production
in 1988;
2) exports plus imports are more than 15 percent of production
in 1988; or
3) a significant decline in net exports as a percent of production
is expected over the baseline period.
The appropriate 8-digit SIC code is assigned to each chemical on the list.
Then, these chemicals are matched with the products of the plant and
product-line closure candidates, to determine the percentage of production
that will be lost in each of the 8-digit SIC codes, under each regulatory
option.
Price increases, assuming prices increase by the average cost increase,*
are calculated for each 4-digit SIC code. A qualitative assessment is made of
the size of the price increases resulting from the regulatory options,
including comparisons with other measures of price increases, to determine if
the price increases resulting from the options will make it more difficult for
U.S. producers to compete in world markets, thus worsening the balance-of-
trade.
3.11 Small Business Analysis
Public Law 96-354, the Regulatory Flexibility Act, requires EPA to
determine if a significant impact on a substantial number of small businesses
occurs as a result of the proposed regulation. If there is a significant
impact, the act requires that alternative regulatory approaches that mitigate
or eliminate economic impacts on small businesses must be examined. To
address these objectives, an analysis is performed to identify whether or not
small businesses in the OCPSF industry are significantly impacted by the
proposed regulation.
The analysis considers the distribution of impacts of treatment costs
among plants, using sales to describe the size of the plant. The plants are
ranked by total plant sales.
3. 12 New Sources
For conventional pollutant control, EPA is considering a more stringent
control option for new sources as compared to existing sources. Because
additional BOD and TSS control may be more stringent, the incremental
* The increase in price is equal to: treatment costs divided by total
production value. This assumes a particular pass-through of the costs. On
average, the more plants incurring treatment costs, the larger the percentage
that the plant can pass on to its customers.
-------
3-31
conventional pollutant treatment cost impacts under NSPS are compared to the
impacts of controlling conventional pollutants under BPT. Average BOD and TSS
raw waste water concentrations are estimated for each BPT subcategory. Model
wastewater flows are estimated using the 25th and 50th percentiles of flow for
each subcategory.
BPT and NSPS (BPT with filter) costs are estimated for two model plants in
each of seven subcategories. These costs are presented in Appendix 3F. No
costs are estimated for the Other Fibers subcategory since effluent
limitations are the same for BPT and NSPS for this subcategory. The 25th
percentile flow represents the smaller plant and the 50th percentile flow
represents the larger one for its subcategory. Separate costs are given for
capital, land, and operation and maintenance. Annualized costs are calculated
as follows:
Annualized Costs = (Capital + LandHCRF) + (O&M) (16)
where,
CRF = Capital recovery factor = .192
Sales are estimated for each of the model plants, based on the
relationship between flow and sales found in existing plants. Separate sales
- flow regressions are estimated for.each subcategory, using subcategory and
flow information from existing sources and sales information from Part A of
the §308 Survey (see Appendix 3G for regression results). The flow data
represent 1980 levels, while the sales data are for 1982. In general, sales
were lower in 1982 than in 1980. Therefore, these regressions tend to
underestimate plant sales.
The NSPS regulations for conventional pollutants are analyzed in terms of
their impact on profits and on liquidity. Based on the definitions used for
the analysis of BPT, BAT and PSES regulations, the changes in profits and
liquidity resulting from the conventional pollutant NSPS are compared to the
changes in profits and liquidity resulting from BPT. This comparison measures
the incremental impact of NSPS; in other words, how much more profits and
liquidity are reduced by standards that are more stringent than BPT.
Appendix 3H presents the algorithms used in calculating the percentage changes
in profits and liquidity, including the assumptions made.
The incremental impacts of priority pollutant control options for new
sources are assumed to be comparable to the difference between the treatment
cost impacts of BATH I and of BATH for existing sources. Although no model
plant costs are developed for these options, priority pollutant treatment cost
impacts for new sources are estimated in a similar manner as those for NSPS
conventional pollution control. The incremental treatment cost impacts
between BATH I and BATH are compared to the impacts for BATH for existing
sources. Impacts in terms of the percentage change in profits and liquidity
are considered. The difference between the percentage changes in profits due
to BATIII and BATH are calculated for each of the existing plants. The
plants are then ordered in terms of this difference. The difference in
impacts for the plant corresponding to each decile (i.e., the plant at the
10%, 20%, 30% etc. point) is compared to that plant's percentage change in
-------
Appendix 3A
Corporate Database Description
A corporate database including financial and product line characteristics
is developed for firms owning OCPSF plants. The objectives are to
(1) identify publicly and privately owned firms in the OCPSF industry;
(2) obtain, when available, financial information such as stock prices and
various financial ratios based on income statements and balance sheets for
each public and private firm; and (3) collect general industry financial data.
Ownership status of firms owning OCPSF plants (whether each firm is under
public, private, or foreign ownership), is included in the corporate financial
database. The corporate database is based on 997 plants on the EPA OCPSF
§308 Survey database. Name and city/state/zip code location for each of these
plants are from the mailing list for the §308 Survey.
Data on each level of corporate ownership of these plants, including
parent corporation, division, group, and subsidiary, where applicable, are
included when available. Throughout this appendix, all of these corporate
entity levels are called "firms". References consulted for plant ownership
are the Directory of Corporate Affiliations.!/, the Million Dollar
Directory!./, state industrial guides for 40 states, and Moody's Industrial
Manuail/7 The state industrial guides are consulted only if a plant name is
not found in the other three sources. Sixty-seven of the 997 plants are not
found in any of these sources, and are not included in the corporate
database. Therefore, the corporate database currently includes information
representing 930 OCPSF plants.
Each of the 930 plants represented in the company database is associated
with at least one firm. If the plant is owned by a subsidiary,of a large
parent corporation, information on both the subsidiary and the parent is
included in the company database. The subsidiary is the plant's "direct
owner", the parent is the "parent corporation." in many cases there are
multiple intermediate levels of ownership. Firms at each level are included
in the database. If there are two plants owned by the same company but whose
data are from two different state industrial guides (SIGS), a parent name is
in the database flagged with "SIG" as a data source, with no data, and each
plant is treated as a separate subsidiary.
I/ National Register Publishing Company Directory of Corporate
Affiliations, 1983.
_2/ Dun and Bradstreet, Million Dollar Directory, 1983.
3/ Moody's Industrial Manual, 1983, 1984.
-------
3A-2
One hundred twenty-three parent corporations representing 596 plants, and
102 direct owners representing 493 plants under public ownership (both U.S.
and foreign) are found in the Standard and Poor's COMPUSTAT database. Con-
siderably more detailed and complete financial data are available for firms on
COMPUSTAT than for those firms whose only information comes from other sources.
Table 3A-1 lists a description of the 69 selected financial statement
items recorded for each firm in the COMPUSTAT system acquired for our
analysis. Annual data are available for five years, from 1978 through 1982
for 101 firms, and from 1979 to 1983 for the other 22 firms, though many firms
are missing values for one or more of the variables.
Three other sources are used to acquire data on OCPSF firms. The
financial and product information from these sources are generally limited to,
at most, whether a firm is under public, private, or foreign ownership, firm
employment, annual sales, whether a firm imports and/or exports, and major
product Standard Industrial Classification codes (SICs).
Data on 235 parent corporations, (this includes parents also found in
COMPUSTAT), and 268 direct owners, representing 813 and 790 plants,
respectively, are found in the Million Dollar Directory or the Directory of
Corporate Affiliations.
Information on the remaining 117 plants at the parent level, and 140
plants at the direct ownership level, was found only in State Industrial
Guides (see Table 3A-2). These plants tend to be owned by comparatively small
financial entities. State industrial guide data are frequently plant level,
therefore, these firms/plants are described separately from the others.
Figure 3A-1 describes the numbers of parents, direct owners, and plants by
firm data source.
Table 3A-3 presents average employment and sales data for the firms.
Separate figures are reported for direct owners and for parent corporations,
for data from State Industrial Guides (SIGS), and for publicly, privately, and
foreign owned firms. Publicly held, parent corporations are generally the
largest of the firms. The plant/firms with data from SIGS are much smaller
than those with data from the Million Dollar Directory (MDD) or the Directory
of Corporate Affiliations (DCA).
One major OCPSF SIC is assigned to each firm, including both direct owners
and parent corporations. This is done by summing value of OCPSF shipments by
SIC (Standard Industrial Classification) as reported in the §308 question-
naires, for all plants owned by each firm, and choosing the SIC with the
largest value for each firm. Table 3A-4 presents firm counts by major SIC.
Again, the firms are broken down by data source, and ownership level. Average
employment and sales figures for the firms by major SIC are also given. The
highest number of firms report SIC 2869 as their major product SIC, followed
by those which report 2821 as their major SIC. Comparatively few firms report
production of products under SICs 2823 and 2824.
Since the firm list in the company database is based on the plants in the
OCPSF industry, it is interesting to note what percentage of each direct owner
is made up of OCPSF plants. The importance of the plants to the firms can be
-------
3A-3
Table 3A-1. Financial Statement Items from COMPUSTAT
Data Item Description
1. Cash and Short Term Investments
2. Receivables
3. Inventories
4. Current Assets (Total)
5. Current Liabilities (Total)
6. Assets (TotaD/Liabilities and Net Worth (Total)
7. Plant-Gross
8. PIant-Net
9. Long-Term Debt (Total)
10 Preferred Stock at Liquidating Value
11. Common Equity (Tangible)
12 Sales-Net
13. Operating Income Before Depreciation
14. Depreciation and Amortization
15. Interest Expense
16. Income Taxes (Total)
17. Special Items
18. Income Before Extraordinary Items and Discontinued Operations
19. Preferred Dividends
20. Common Stock Equivalents
22. Price—High
23 Price--Low
24. Price—Close
25. Common Shares Outstanding
27. Adjustment Factor (Cumulative)
29. Employees
30. Capital Expenditures (Additions to Property, Plant and
Equipment)
31. Investments In and Advances to Unconsolidated Subsidiaries
32. Investments In and Advances to Others
33. Intangibles
34. Debt In Current Liabilities
35. Deferred Taxes and Investment Tax Credit
36. Retained Earnings
37. Invested Capital (Total)
38. Minority Interest (Balance Sheet)
40. Common Shares Reserved for Conversion
41. Cost of Goods Sold
42. Labor and Related Expense
44. Debt Due in One Year
49. Minority Interest (Income Account)
53. Earnings per Share (Primary)—Including Extraordinary Items and
Discontinued Operations)
54. Common Shares Used to Calculate Primary Earnings per Share
-------
3A-4
Table 3A-1. Financial Statement Items from COMPUSTAT
(continued)
Data Item
Description
57. Earnings per Share (Fully Diluted)—Excluding Extraordinary
Items
58. Earnings per Share (Primary)—Excluding Extraordinary Items and
Discontinued Operations
60. Common Equity (As Reported)
61. Non-Operating Income/Expense
62. Interest Income
65. Amortization of Intangibles
68. Current Assets (Other)
69. Assets (Other)
70. Accounts Payable
72. Current Liabilities (Other)
74. Deferred Taxes
75. Liabilities (Other)
79. Debt (Convertible)
85. Common Stock
86. Treasury Stock (Total Dollar Amount)
88. Present Value of Non-Capitalized Leases
127. Cash Dividends
128. Capital Expenditures
130. Preferred Stock—Carrying Value
150. Foreign Currency Adjustment
162. Cash
163. Property, Plant and Equipment (Ending Balance)
172. Net Income (Loss)
(6-130-60). Liabilities (Total)
(18+16+49). Pretax Income
(130+60). Stockholders' Equity
-------
3A-5
Table 3A-2. Parent Corporation and Direct Owner Counts
by Data Source and by Ownership Status
A. Firms with Data from Million Dollar Directory and
Parent
Corporations
Public
Private
Foreign
Total
Di rectory
Number of
Parent
Corporations
141
71
23
235
of Corporate Affiliations
% of Non-SIG
Parent
Corporations
60.0
30.2
9.8
100.00
Number of
Plants
Represented
626
95
92
813
% of all 930
OCPSF Plants
Represented
67.3
10.2
9.9
87.4
Di r ect
Owners
Public
Private
Foreign
Total
Number of
Direct
Owners
172
69
27
268
% of Non-SIG
Direct
Owners
64.2
25.8
10.1
100.00
Number of
Plants
Represented
616
90
84
790
B. Firms with Data Only from State Industrial Guides i
Parent
Corporations
Public
Private
Foreign
Total
Number of
Pa t ent
Corporations
1
94
1
96
•
% of SIG
Parent
Corporations
1.0
97.9
1.0
100. 00
Number of
Plants
Represented
1
114
2
117
% of all 930
OCPSF Plants
Represented
66.2
9.7
9.0
84.9
SIGS)
% of all 930
OCPSF Plants
Represented
0. 1
12.3
10.2
12.6
Di rect
Owners
Public
Private
Foreign
Number of
Di rect
Owners
10
108
9
% of SIG
Di rect
Owners
7. 9
85.0
7. 1
Number of
Plants
Represented
10
120
10
| % of all 930
OCPSF Plants
Represented
1. 1
12.9
1. 1
Total
127
100. 00
140
15. 1
-------
3A-6
Figure 3A-1.
Description of Corporate Database.
Data from Each Source.
Percent of Firms with
Parent Corporations
a. Parents with data from Million Dollar
Directory or Directory of Corporate
Affiliations. Owners of 813, or 81.5%
of all 997 OCPSF plants.
b. Parents with data also from COMPUSTAT.
Owning 596 plants, or 59.8% of all
997 OCPSF plants.
c. - Parents with data from state industrial
guides only. Owners of 117 plants, or
11.7% of all 997 OCPSF plants.
See Note
c. 96 Parents
29.0%
Direct Owners
a. Direct Owners with data from Million
Dollar Directory or Directory of
Corporate Affiliations. Owners of 790,
or 79.2% of all 997 OCPSF plants.
b. Direct Owners with data also from
COMPUSTAT. Owners of 493, or 49.5 %
of all 997 OCPSF plants.
c. Direct Owners with data from state
industrial guides only. Owning 140,
or 14.0% of all 997 OCPSF plants.
Note: No firm level data are available on 67,
or 6.7% of all OCPSF plants.
-------
3 A-7
Table 3A-3. Parent Corporation and Direct Owner Average Employment
and Sales by Data Source and by Ownership Status
A. Firms with Data from Million Dollar Directory
Parent
Corporations
Public
Private
Foreign
Average 1982
Employment
41205.1
893.8
and Directory of Corporate Affiliations
Number of
Values
135
63
0
Standard
Deviation
69730.7
2294.7
Average 1982
Sales (£mll)
5863.7
101.4
Number of
Values
135
62
0
Standard
Deviation
13149.3
261.2
Total 28378.8 198 60525.9 4050.2 197 | 11199.5
Direct Owners
Public
Private
Foreign
Average 1982
Bnployment
28180.4
949.2
4628. 3
Number of
Values
142
65
13
Standard
Deviation
46383.3
2396.7
4313.7
Average 1982
Sales (imil)
5530.5
105.2
691.9
Number of
Values
131
64
18
Standard
Deviation
13137.9
265.5
718.8
Total 18827.0 225 39481.6 3491.5 213 10611.3
B. Firms with Data from State Industrial Guides
Parent
Corporations
Public
Private
Foreign
Average 1982
Bnployment
7250. 0
72.3
400.0
Total 163.9
Number of
Values
1
80
1
Standard
Deviation
159.8
•
Average 1982
Sales (imil)
538.0
12.2
Number of
Values
1
33
0
Standard
Deviation
31.2
32 803.6 27.7 34 95.3
Direct Owners
Public
Private
Foreign
Total
Average 1982
Employment
1094.3
81.3
246.0
178.3
Number of
Values
10
100
8
118
Standard
Deviation
2349.5
153.5
249.7
726.9
Average 1982
Sales ($mil)
182.2
11.2
10
23.1
Number of
Values
3
39
1
43
Standard
Deviation
308.2
28.7
84.9
- » no data for these firms
. • only one value, therefore no deviation
-------
3A-8
Table 3A-4. Numbers of Parent Corporations and Direct Owners
Reporting Firm Production of the Five OCPSF SIC'S,
Including Average Sales and Employment of the Firms
A. Firms with Data from Million Dollar Directory
and Directory of Corporate Affiliations
Parent Corporations
2821
2823
2824
2865
2869 N.A.
Number of Non-SIG Parents
with this Major SIC 79
Percentage of Non-SIG Parents
with this Major SIC 33.6
Average Annual Sales of Parents
with this Major SIC
(1982 $mil) 4059.6
Standard Deviation from Mean
9553.5
Average Employment of Parents
with this Major SIC 36754.8
Standard Deviation from Mean 82077.8
0.9
3.0
30
12.8
96
40.9
21
8. 9
40.0 2195.0 2705.0 5496.8 617.8
2804.9 6113.5 14868.2 877.8
1500.0 29228.2 18773.9 29464.4 8222.3
37185.4 33578.5 52842.2 13114.7
Di rect Owners
2821
2823
2824
2865
2869 N.A.
Number of Non-SIG Direct Owners
with this Major SIC 89
Percentage of Non-SIG Direct Owners
with this Major SIC 33.2
Average Annual Sales of Direct Owners
with this Major SIC
(1982 $mil) 2979.7
Standard Deviation from Mean 8106.4
Average Employment of Direct
Owners 20918.3
Standard Deviation from Mean 51923.5
0. 8
3.4
33
12.3
111
41.4
24
9.0
84.5 5058.2 2242.3 4836.7 1016.0
62.9 11573.5 6014.1 14186.8 2347.6
1200 33250.1 13850.7 19704.7 10743.3
424.3 56669.2 30486.3 30747.1 23281.3
-------
3A-9
Table 3A-4. Numbers of Parent Corporations and Direct Owners
Reporting Firm Production of the Five OCPSF SIC'S,
Including Average Sales and Employment of the Firms
(continued)
B. Firms with Data from State Industrial Guides (SIGS)
Parent Corporations
2821
2823
2824
2865
2869 N.A.
Number of Parent Corporations
with this Major SIC 28
Percentage of Parent Corporations
with this Major SIC 29.2
Average Annual Sales of Parents
with this Major SIC
1.0
4.2
8.3
Number of Direct Owners
with this Major SIC 36 1
Percentage of Direct Owners
with Major SIC 28.4 0. 8
Average Annual Sales of Direct
Owners with this Major SIC
(1982 $mil) 50. 1 NA
Standard Deviation from Mean 147.5
Average Employment of Direct
Owners with this Major SIC 351.1 1000
Standard Deviation from Mean 1302.1
4.7
NA
297
324.9
14
11.0
5.3
4.4
108.3
198.2
43
12
44.8 12.5
(1982 $mil) 63.9 NA
Standard Deviation from Mean 167.6
Average Employment of Parents
with this Major SIC 335.8 NA
Standard Deviation from Mean 1473.4
NA 4. 9 18. 2 4. 6
4.8 45.4 3.1
345 34.7 102.9 32.7
396.3 25.4 202.8 17.6
Direct Owners 2821 | 2823
2824 2865 2869 | • N.A.
50
20
39.4 15.8
15.9
41.3
84.3
124.4
5.8
3.4
54. 6
49.6
-------
3A-10
estimated by comparing summed plant employment and shipment values (both OCPSF
and non-OCPSF) for all plants owned by one direct owner, to employment and
sales values found in the Million Dollar Directory (MOD) or Directory of
Corporate Affiliations (DCA) for that firm. This is done only for firms with
MOD or DCA data since state industrial guides are usually plant specific. The
employment and shipment values in Questions 9 and 10 of the §308 Survey
Questionnaires are summed to get plant employment and value of shipments.
Results are shown in Tables 3A-5 and 3A-6. Forty-three of the 268 direct
owners with data from the Million Dollar Directory or Directory of Corporate
Affiliations are missing both sales and employment values, and are therefore
not included in this analysis. Table 3A-5 includes those firms with no
missing data. Table 3A-6 includes direct owners missing either sales or
employment values.
Many (36 percent) of the comparisons (74 of a total of 207 direct owners
that include both sales and employment data) show that the total business of
the OCPSF plants is a very small proportion (less than 10 percent) of the
total operations of the plants' corporate owners, even when compared to
business at the lowest level of corporate ownership, the direct owner. In
these cases, both summed plant-by-firm employment and shipment values are less
than 10 percent of direct owner employment and sales values. Three of the 207
(1.5 percent) summed plant-by-firm values are within 10 percent of the direct
owner values for. both employment and sales (summed plant values are between 90
and 110 percent of the direct owner values). An additional six summed
plant-by-firm values are from 70 to 125 percent of the direct owner employment
and sales values. In these nine cases, operations of the OCPSF plants in the
§308 Survey database represent most of the direct owners' business. There are
eight cases in which summed values of the plants are significantly higher than
values for the entire firm. This could result from incorrect plant ownership
information, incorrect corporate values or incorrect reporting on the §308
Survey. Also, if a plant has changed ownership since 1982, it may be
considered under the new owner whereas the 1982 sales data of that firms would
not reflect that ownership.
-------
3 A-11
Table 3A-5. Comparison of Sales and Employment §308 Survey Data
Summed Across Plants Owned by Each Direct Owner
to Sales and Employment Values for Direct Owners
Ratio of Summed
Plant Value to
Direct Owner Value
Employment
Number of Firms Falling into These Ratios
Sales
0-10% 10-30% 30-50%
0-10% 74 19 2
10-30% 5 11 15
30-50% 216
50-70% 001
70-90% 001
90-110% 010
110-125% 000
over 125%* 000
50-70% 70-90% 90-110% 110-125%
100 0
744 2
364 1
384 3
113 0
113 0
001 0
000 0
+125%*
0
0
1
5
0
0
2
0
Total Firms
207
. missing value
* Any value greater than 125 percent indicates incorrect values either for the plants'
summed total value from the §308 Survey or from the corporate data sources since the si
of a corporation's plants' value cannot equal more than that corporation's value.
-------
3B-2
Table 3B-1. Summary of §308 Survey Economic Data
# of Plants
Variable With Data
Plant employment
OCPSF Employment
OCPSF Production
Quantity (tons)
Value (M$)
Non-OCPSF Production
Quantity (tons)
Value (M$)
OCPSF Shipments
Quantity { tons)
Value (M$)
Non-OCPSF Shipments
Quantity (tons)
Value (M$)
Production Costs (M$)
Capital Costs (M$)
New Equipment
Used Equipment
967
967
882
882
572
572
882
882
572
572
949
922
717
1 of Plants
Missing data Mean Value
30
29
115
115
425
425
115
115
425
425
48
75
280
296
190
97,433.5
78.4
145,212
61.2
79,915.5
60.6
103,182
54.2
57.3
6.5
0.1
Sum of Values
286,775
183,854
85,945,211
69,178
83,061,223
34,990
70,485,489
53,516
59,020,366
31,020
54,440
5,969
77
.7
.5
.2
.5
.0
.7
Note: 1 ton'= 2000 Ibs
M = Million dollars
-------
3B-3
Table 3B-2. Summary of §308 Survey Economic Data for OCPSF Plants*
t of Plants
Variable With Data
Plant Employment
OCPSF Employment
OCPSF Production
Quantity ( tons)
Value (M$)
Non-OCPSF Production
Quantity ( tons)
Value (M$)
OCPSF Shipments
Quantity (tons)
Value (M$)
Non-OCPSF Shipments
Quantity (tons)
Value (M$)
Production Costs (M$)
Capital Costs (M$)
New Equipment
Used Equipment
876
882
882
882
495
495
882
882
495
495
864
840
657
f of Plants
Missing data Mean Value
6
0
0
0
387
387
0
0
387
387
18
42
225
313
207
97,443.5
78.4
151,900.0
66.3
79,915.5
60.7
111,939.1
58.4
56.5
6.8
0.08
Sum of Values
274,048
182,816
85,945,211
69,178.7
75,190,488.8
32,810.9
70,485,489
53,516.2
55,409,840.1
28,932.6
48,800
5,687.4
51.4
Note: 1 ton = 2000 Ibs
M = Million dollars
*These plants list at least one OCPSF SIC product group as produced at the
plant at the time of the §308 Survey.
-------
Appendix 3C
Replacement Estimates for Missing §308 Survey Data
For plants which are missing some of the §308 Survey data necessary for
the economic impact analysis, estimates are made in the following ways:
Missing Sales Values. Estimates for missing sales values are obtained by
applying unit values for 8-digit SIC codes (developed from plants
providing sufficient §308 survey data) to production quantity. If both
production quantity and sales value are missing, sales value estimates are
based on plant employment to sales ratios calculated from plants which
provided sufficient §308 survey data.
Missing Production Quantity. Estimates for missing production quantity
are obtained by applying unit values for 8-digit SIC codes (developed from
plants which provided sufficient §308 survey data) to sales value. If
both production and sales value are missing, production quantity estimates
are based on employment to quantity ratios calculated from plants which
provided sufficient §308 survey data.
Estimates for 87 missing OCPSF quantity observations and 117 missing OCPSF
value observations were calculated from 8-digit OCPSF SIC code unit values
(Table 3C-1).
Plants Missing Employment. Estimates for the 15 plants missing OCPSF
employment was calculated from an industry average of ^297,741/employee.
Plants Missing Production Costs. Plants missing production cost data are
eliminated from the production cost impact measure, but are_included in
the remainder of plant level impact analyses if enough other data are
provided; therefore, the total number of plants analysed for the
production cost impact measure may be less than the number of plants
included in the overall plant-level analysis.
An organic chemicals sales value or estimate is required for each plant
included in the plant level impact and closure analyses. Thus, plants which
failed to provide employment and production data as well as sales data in the
§308 Survey cannot be included in the plant-level analysis because sales value
cannot be estimated for these plants. However, since the plant-level analysis
results are scaled up to represent the total number 'of regulated plants for
the industry-wide impact analysis, plants with missing employment, production
quantity and sales value data are included in the industry-wide analysis even
though they are not included in the plant-level analysis.
-------
3C-2
Table 3C-1. List of Unit Values for 8-digit SIC Codes
8-digit
SIC Code
28210000
28211107
28211305
28211404
28211602
28212825
28212905
28213001
28213005
28213007
28213008
28213235
28213501
28213506
28214005
28214006
28214085
28216000
23216803
28216813
28216814
28219005
28233369
28233377
28233419
28233716
28240604
28241149
28241164
28241339
28241354
28241438
28242418
28243319
28243335
28243392
28244317
28244333
28244358
28244374
28244390
28245611
Unit Val
($/lb)
1.34375
2.59991
3.58242
2.59777
2.35001
0.77519
0.52391
0.69124
0.43013
0.42035
0.57983
0.69088
0.54714
0.48077
0.36626
0.13011
1.02976
0.29501
0.87011
0.85071
0.70000
0.41746
1.83539
0.88263
0.77313
1.50529
7.23270
1.55245
1.80241
1.24023
1.52982
0.50867
1.19910
9.50704
0.93069
0.72476
0.76357
1.05210
0.70464
0.72154
0.41991
1.25000
8-digit
SIC Code
28245637
28245660
28245694
28245728
28245736
28245744
28246007
28246155
28246312
28246510
28246627
28651008
28652006 ;
28653004 :
28653008
28653500
28655008
28655009
23690000
28690006
28693133
28693158
28693315
28693513
28694008
28695102
28695112
28695211
28695310
28695377
28695534
28695559
28695705
28695980
28695989
28696003
28696110
28696258
28697000
28697001
28697134
Unit Val
(£/lb)
1.29355
0.69603
0.09370
8.21770
8.20457
0.09174
1.20036
2.40830
2.15030
0.94230
1.55013
0.30964
1.85954
2.87054
7.111
4.325
0.260
0.208
1.341
2.272
1.323
1.293
1.385
0.419
1.395
0.143
0.234
0.230
5.395
11.051
0.724
0.342
0.786
0.424
0.284
0.499
0.248
0.459
0.483
0.257
2.161
-------
Appendix 3D
OCPSF Industry Cost of Capital Estimation
There are many ways that industry cost of capital can be estimated. This
appendix discusses some of the concepts important for estimating cost of
capital, highlights some of the problematical areas in developing such
estimates, notes the alternatives considered for this analysis, and describes
the method used in the economic impact analysis.
The cost of capital is used in this analysis in two ways: 1) to annualize
wastewater treatment captial investment costs; and 2) to discount cash flows
for the closure analysis. Investment in wastewater treatment is new
investment and so the rate used must be incremental for new funds rather than
based on the firm's historical financing costs. The cost of capital for
wastewater treatment depends on how the investment is financed, but
fundamentally, it is an opportunity cost reflecting the best alternative rate
of return that can be obtained by the firm including purchase of its own
stocks.
To discount cash flow and the terminal salvage value of the plant over the
planning period for closure analysis, a discount rate is required. Because
the bulk of fixed costs is already sunk in plant and equipment in place, an
average historical rate of return based on total assets is appropriate for
this type of analysis. This rate is also an opportunity cost based on the
best return that is obtained by the firm from its investment.
To finance business enterprise, a company may issue stock to obtain funds
which is called equity financing. A company also has the option of buying
back its own stock on the open market and if it should do so, the resulting
increase In stock value would be the highest rate of return available on the
equity portion of its assets. Loans and debt are a second source of funds
which includes bonds, notes and short-term commercial paper. These are
usually the cheapest forms of funding, but as a firm expands its debt
holdings, its cost of debt increases, forcing it to reach an equilibrium with
its return on equity. In addition to these two major financing mechanisms, a
company can issue preferred stock. Also, for pollution control financing,
industrial revenue bonds are sometimes floated. These latter sources of
capital are minor in comparison to common stock and corporate debt issues.
Some of the difficulties and necessary assumptions involved in estimating
cost of capital are summarized below:
1. The marginal rate of return on debt, equity or total assets is
the appropriate rate to use to estimate cost of capital since
the estimation is of the return to (or cost of) an additional
dollar spent. Unfortunately, however, data to estimate the
marginal rate are not available; company income statement data
-------
3D-2
provide only historical information on the average rate of
return, which reflects past investors' perceptions of the
firm's financial position. Therefore, it was necessary to
accept this limitation in order to estimate cost of capital
from company financial statements.
2. There is some question as to whether to estimate cost of
capital using return on equity or return on capital as a
whole. Pollution control equipment can be financed using new
stock issues, debt instrument issues or retained earnings. In
addition, a company's equity position can change through
buy-outs or mergers or additional loans. Also, in a period of
inflation, the value of debt decreases relative to the value of
equity. It, therefore, appears preferable to estimate return
on total assets.
3. It is generally agreed that real rate of return calculations
are preferable to nominal rate calculations for discounted cash
flow analyses because they allow the use of constant annual
cash flows instead of projecting future cash flows. However,
such a choice does limit the data available for the calculation
since information on inflation adjustments is only available
for a few years from large public companies which are required
to include this information in their 10-K reports.
Furthermore, if the real rate of return is used to estimate
cost of capital, the other items in the analysis such as
depreciation and inventory must also be adjusted for inflation
effects. Despite these limitations, a real rate of return is
estimated for the closure analysis cost of capital, and other
appropriate adjustments are made so that annual cash flows can
be assumed to remain constant over the planning period.
4. Stock prices are sometimes used to calculate return on equity.
This assumes that the stock price represents the value of the
firm, but it may not an appropriate assumption since the stock
price is affected by many other factors which create optimistic
or pessimistic markets. Investor dividends are also sometimes
used for cost of capital estimations, but the future growth
rate of dividends is not easy to predict. In addition, if
earnings data are used along with stock prices, they may not be
reported for the same time periods. Therefore, neither of
these measures were used.
Both nominal and real weighted average costs of capital are developed for
those OCPSF parent corporations in the Standard and Poor's Compustat Database
and for which the Value Line Investment Survey reports a Beta (B) or risk
premium. This is done only for those plants with no missing values for debt
or equity on Compustat. There are 123 OCPSF parent corporations on the
Compustat database, eleven of which are not assigned Betas by Value Line, and
an additional three of which are missing either debt or equity values on
Compustat. Therefore, the weighted average costs of capital are developed for
109 companies. The following equations are used for the calculations:
-------
3D-3
r=i+(Rm-i)B, (1)
Nominal WACC = r(e/a) + yd - t)(d/a) (2)
and
Real WACC = [(1 + Nominal WACO/d + g)J - 1 (3)
Definitions and Sources of Variable Values
r = After tax return on company equity. Presented in percents.
i = 9.05% and 8.0%. = Risk free rate of return. 9.05 from the DRI
Macromodel, used in the impact analysis.
(Rm - i) = 8.3% = Rate of return of market portfolio over risk free
investment. Developed from 56 years of data.
B = Beta = Risk premium. An average of three years of company Beta values
taken from Value Line Investment Survey/ Part I Summaries & Indexes,
August 1982, 1983, 1984. Presented in percents.
Nominal WACC = Unadjusted weighted average cost of capital. Presented in
percents.
Real WACC = Weighted average cost of capital corrected for inflation.
Presented in percents.
e = Five year average of company equity data from Standard & Poor's
Compustat Service.
d = Five year average of company long-term debt data from Standard & Poor's
Compustat Service.
a = e + d = Value of the firm.
y = 11.08% = Before tax interest rate on debt. From the DRI Macromodel.
t = 45% = Marginal tax rate. '
g = 5% = Inflation rate from the DRI Macromodel.
Results
The averages and variances of Beta values from Value Line, after tax
return on equity, -ratios of debt and equity to firm values, and real and
nominal weighted average costs of capital of the 109 OCPSF companies are
presented in Table 3D-1.
-------
3D-4
Table 3D-1. Nominal and Real Weighted Average Costs
of Capital for OCPSF Producers
(All Values Presented as Percents)
Mean Standard Minimum Maximum
Deviation Value Value
Beta (B) 0.99 0.17 0.55 1.52
After tax return on equity
when i=9.05 (r)* 17.28 1.41 13.62 21.67
After tax return on equity
when i=8.0(r) 16.23 1.41 12.57 20.62
Ratio of equity to value of .
the firm (e/a) 72.00 12.30 35.50 99.20
Ratio of long-term debt to
value of the firm (d/a) 28.00 12.30 0.80 64.50
Nominal weighted average
cost of capital (WACC)
when i=9.05** 14.15 1.47 9.94 17.73
Real WACC when i=9.05 8.71 4.71 12.12
Nominal weighted average
cost of capital (WACC)
when i=8.0 13.39 1.38 9.57 16.89
Real WACC when i=8.0 7.99 4.35 11.32
Source: See definitions and sources on p. 3D-3.
* This is the value used in the impact analysis.
** This is the value used in the impact analysis except that a two percent
increase is used for small facilities.
-------
Appendix 3E
Company Financial Ratios and COMPUSTAT Data Use
Estimation of company financial ratios was performed using COMPUSTAT. The
COMPUSTAT data items used for each of the three selected ratios are:
Ratio
Definition
COMPUSTAT Data Items
1. Debt to Assets =
Ratio
total liabilities + debt
total assets
(6 - 130 - 60)
2. Beaver1s Ratio
cash flow
total liabilities + debt
net profit after taxes +
depreciation and
amortization expense
total liabilities and debt
( 172 + 14 )
( 6 - 130 - 60 )
3.
Return on Net
Worth
profit before taxes
tangible net worth
( 18 + 16 -i- 49 )
( 130 + 60 - 33 )
where the definition of the COMPUSTAT items are:
6 Asset (total) = Liabilities and Net Worth (total)
14 Depreciation and Amortization
16 Income Taxes (total)
18 Income Before Extraordinary Items and Discontinued Operations
33 Intangible Assets
49 Minority Interest (income account)
60 Common Equity (as reported)
130 Preferred Stock (carrying value)
172 Net Income (Loss)
-------
Appendix 3F
Model Plant Cost Estimates
BPT ONLY
SUBCATEGORY
RAYON
FIBERS
THERMOSETS
THERMOPLASTICS
THP & ORGANICS
COMMODITY
BULK
SPECIALTY
FLOW
8
3
0
0
.81
.30
.156
.015
0.254
0.091
0.
1.
0.
0.
0.
0.
0.
0.
493
352
252
057
245
054
188
016
CAPITAL
3.272x106
1.588x106
0.667x106
2.034x105
.543x106
3.172X105
1.052x106
6.656x106
.653x106
2.990x105
.554x106
2.552x105
.7602x106
2.119x105
LAND
688
507
326
326
326,
326,
362,
398,
326,
326,
326,
326,
326,
326,
,275
,150
,025
,025
,025
025
250
475
025
025
025
025
025
025
O&M
272
118
19
16
,028
,715
,831
,407
19,789
16,342
24,
335,
20,
16,
19,
16,
20,
16.
072
530
497
531
805
017
678
500
BPT
CAPITAL
4
2
.699x106
.427x106
9.44x105
4.110X105
8.
5.
1.
7.
9.
5.
8.
4.
1.
4.
562xl05
658xl05
434xl06
207xl06
656xl05
298xlff5-
644x105
843x105
050x106
198x105
PLUS FILTER
LAND
723,087
523,814
330,089
329,430
330,680
329,666
368,162
408,078
330,669
329,445
330,629
329,430
330,289
329.412
O&M
380,018
194,765
53,041
39,387
56,709
46,232
67,402
392,830
57,347
44,081
56,425
43,327
55,218
39.640
Source: EPA estimates.
-------
Appendix 3H
Impact Measures for NSPS Impact Analysis
1. Profitability:
% Change Profit = TACA/(P%S/100 * V88) * 100
where:
% Change Profit * % change in profit due to treatment cost
TACA = total annualized cost of regulation
= CRF * (CCA + LA) + OMA
CRF = capital recovery factor
- R/(l - (1 + R)-T)
R = cost of capital, nominal rate = .141
T = 10 years
CCA = capital cost of treatment (M$)
LA = land cost of treatment
OMA = O&M cost of treatment (
V88 = baseline sales value
P%S = profit before tax as % of sales from Robert
Morris, see attached table.
2. Liquidity:
% Change Liquidity = Change in CF5/PVCF05 * 100
where:
% Change Liquidity = % change in liquidity due to treatment cost
Change in CF5 = change in present value of cash flow due to
treatment over 5 years
= (1 - ITCF) * CCA + LA + (1 - CT) * OMA * PVFL
PVCF05 = present value of baseline cash flow over 5 years
= PVFL * CFO
PVFL = present value factor for liquidity analysis
=(!-(!+ R)-T)/R
CFO = baseline cash flow
= PROFIT * (1 - CT) + INTEREST + DEPRECIATION
CT = corporate tax rate = .45
PROFIT = P%S/100 * V88
P%S = profit before tax as % of sales from
Robert Morris
V88 = baseline sales (M$)
INTEREST = (P%S/100)/(REBITI - 1) * V88
REBITI = ratio of earnings before tax and interest to
interest, from Robert Morris
-------
3H-2
2. Liquidity (continued)
DEPRECIATION = (DDAS/100) * V88
DDAS = Deprec., Depletion, and Amortization as % of
Sales, from Robert Morris
ITCF = investment tax credit factor = .10
R = cost of capital, real rate = .087
T = 5 years
CCA = capital cost of treatment
LA = land cost of treatment
OMA = O&M cost of treatment (
Robert Morris Financial Ratios
Used in NSPS Analysis
(Median Values 1976-82)
All Plants Small Plants
SIC 282- SIC 286- SIC 282- SIC 286-
Profit Before Tax as
% of Sales (P%S) 3.1% 3.5% 3.6% 5.7%
Ratio of Earnings Before
Tax and Interest
to interest (REBITI) 3.5% .... _4.5% 3.7% 4.6%
Deprec., Depletion, and
Amortization as %
of Sales 1.9% 1.5% 2.3% 1.9%
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Section 4
Treatment Options and Costs
4.1 Overview
This impact analysis addresses the effects on manufacturers of organic
chemicals, plastics and synthetic fibers of increases in costs of pollution
control treatment of effluent wastewater. This section provides a brief
description of the treatment technologies and their costs. It also discusses
the statutory authority for effluent guideline regulations, a summary of
the regulatory options, the regulatory subcategorization scheme, the effects
of other environmental regulations, and a discussion of the treatment costs
used in this analysis. Full discussion of the production processes, effluent
wastewater sources, pollutants present, existing treatment practices, avail-
able treatment technologies, and the costing methodology is given in the
technical support documents (Costing Documentation and Notice of_ New
Information Report).
4.2 Statutory Authority
EPA, under Section 301 of the Clean Water Act, \j is mandated to establish
regulations for the following categories.
Best Practicable Control Technology Currently Available (BPT). These
rules apply to existing industrial direct dischargers, and generally
"cover control of conventional pollutant discharge. 2j
Best Available Technology Economically Achievable (BAT). These rules
apply to existing industrial direct dischargers and cover control of
priority and nonconventional pollutant discharge _3/ more stringent
than BPT.
Best Conventional Pollutant Control Technology (BCT). These rules apply
to existing industrial direct dischargers and cover the control of
conventional pollutant discharge beyond BPT.
New Source Performance Standards (NSPS). These rules apply to new
industrial direct dischargers and cover all pollutant categories.
If U.S.C. 1251 et seq. as amended by Public Law 95-217.
•
2J Conventional pollutants are defined as biochemical oxygen demanding
(BOD) pollutants, total suspended solids (TSS), oil and grease, and pH.
Other pollutants may also be regulated at the BPT level.
3/ Priority pollutants are defined as the 126 pollutants listed in the Clean
Water Act. Nonconventional pollutants are those parameters not defined
as conventional or priority pollutants.
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4-2
Pretreatment Standards for Existing Sources (PSES). These rules apply
to existing indirect dischargers (whose discharges enter POTWs). They
generally cover the control of toxic and nonconventional pollutant
discharges that pass through the POTW or interfere with its operation.
They are analogous to the BAT rules.
Pretreatment Standards for New Sources (PSNS). These rules apply to
new indirect dischargers and generally cover the control of toxic and
nonconventional pollutant discharges that pass through the POTW or
interfere with its operation.
4.3 Treatment Control Technologies
The OCPSF industry has a diversity of effluent wastewater characteristics
among the segments of the industry. Even within some plants, a great variety
of pollutants are found in wastewater flows requiring a range of treatment
technologies to control conventional and priority pollutant discharges. The
technologies described here, alone or in combination with others, are expected
to enable manufacturing facilities to achieve the effluent limitations presented
in this notice. Table 4-1 summarizes the relevant treatment technologies and
the classes of pollutant parameters they typically treat.
4.4 Subcategorization of Industry
The eight subcategories developed for this Notice of Availability are
defined as follows: ''
1. Rayon Fibers (Cellulosics) includes plants in which rayon fibers produced
by the viscose-rayon process constitute at least 95% of total OCPSF
production.
2. Other Fibers includes plants in which other man-made fiber products
constitute at least 95% of total OCPSF production and plants in which
other man-made fiber products plus organic chemicals constitute at least
95% of total OCPSF production.
3. Thermosets includes plants in which thermosetting resins constitute at
least 95% of total OCPSF production and plants in which thermosetting
resins plus organic chemicals constitute at least 95% of total OCPSF
production.
4. Thermoplastics Only includes plants in which thermoplastic materials
constitute at least 95% of total OCPSF production.
5. Thermoplastics and Organics includes plants in which thermoplastic
materials and organic chemicals constitute at least 95% of total
OCPSF production.
6. Commodity Organics includes plants in which organic commodity chemicals
(those produced nationally at a level exceeding one billion pounds per
year) constitute at least 75% of organic chemical production and in
which plastics production is less than 5% of total OCPSF production.
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4-3
Table 4-1. Treatment Control Technologies Available
for Abatement of OCPSF Pollutants
Treatment Process
Class of Pollutant Parameters Treated
In-Plant Controls
Solvent Recovery
Activated Carbon Adsorption
Steam Stripping
Oxidation
Precipitation/Coagulation
/Flocculation
End-of-Pipe Controls
Equalization
Neutralization
Clarification
Flotation
Biological Treatment
(Activated Sludge, Lagoons, etc.)
Polishing Technologies after
Secondary Treatment
(polishing ponds, filtration, etc.)
Zero or Alternative Discharge
Deep well disposal
Contract Hauling
Offsite treatment
Incineration
Evaporation
Impoundment
Land Disposal
Solvents (benzene, toluene, methylene
chloride, etc.)
BOD, COD, TOG,
all priority organic pollutants
volatile organic pollutants
cyanide, sulfide, ammonia,
most organic compounds
suspended solids, suspended
metals
no direct removal—improves effectiveness
of subsequent treatment processes
pH
suspended solids and other
suspended pollutants
suspended solids, oil and grease,
other suspended pollutants
BOD, TSS, COD, TOG,
all priority pollutants
BOD, TSS, COD, TOG,
all priority pollutants
entire discharge diverted
Source: Industrial Technology Division, U.S. EPA
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4-4
7. Bulk Organics includes plants whose production is not classified as
either commodity or specialty organic chemicals but does include at least
95% percent organic chemicals.
8. Specialty Organics includes plants in which specialty organic chemicals
production (those produced nationally at a level below 40 million pounds
per year) constitutes at least 75% of total organic chemicals and in which
plastics production is less than 5% of total OCPSF production.
These subcategories are included in the regulatory scheme for the BPT
regulations. While these subcategories are not used in the regulatory scheme
for the other effluent limitation regulations, they are retained for presentation
of the economic impacts in this analysis.
In addition to the eight BPT subcategories, three additional groups are
defined for presenting economic impacts. These groups contain those plants
for which subcategory assignments cannot be made. They are defined as:
1. Organics (Part A) includes those plants in which organic chemicals are
produced, but for which no designation of Bulk, Commodity or Specialty
can be made from available data. (These plants responded to Part A of
the 308 questionnaire only).
2. Others includes plants in which the organic chemicals, plastics and fibers
production mix does not allow placing them in single subcategory.
3. Organics, NEC includes those plants for which the Agency lacks production
data necessary for placement in a single subcategory.
4.5 Regulatory Options
Unlike other industries for which EPA has established effluent
guidelines, the OCPSF industry is not amenable to the specification of a
single model technology. Instead, effluent limitations will be achieved
using some combination of in-plant control, treatment of specific waste-
streams by any of a variety of physical/chemical methods, biological treat-
ment of combined wastestreams, and post-biological treatment.
4.5.1 BPT Options
Effluent limitations for BPT are developed by analyzing effluent data
from biological treatment facilities that perform well. Three technology
bases are considered for purposes of setting effluent limitations. These
are described in Table 4-2. BPT Option I is based on biological treatment
without post-biological controls. BPT Option II is based on biological
treatment systems both with and without polishing ponds. (Often polishing
ponds are added to biological treatment to improve the performance of otherwise
poorly operating systems). BPT Option III is based on BPT Option II plus
filtration to reduce solids in the effluent wastewater. The rationale for
considering these technologies is included in the technical support documents.
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4-5
Table 4-2. BPT Technology Options
BPT Option
Description
BPT Option I
BPT Option II
BPT Option III
Biological Treatment Only: based on those
plants with biological treatment systems
but without post-biological controls.
Biological Treatment With and Without
Polishing Ponds: based on those plants in
BPT Option I plus those plants with
biological treatment systems followed by
polishing ponds.
Biological Treatment (With and Without
Polishing Ponds) Plus Filtration: based on
those plants in BPT Option II for BOD, but
in addition requires solids control after
biological treatment through filtration.
Source: Industrial Technology Division, U.S. EPA
Table 4-3. BAT Technology Options
BAT Option
Description
BAT Option I
BAT Option II
— with metals
— with volatile organic
chemicals
— with base-neutral or acid
priority pollutants
BAT Option III
Biological Treatment Based on
BPT, or in-plant controls
Biological Treatment plus In-
plant Controls:
— Coagulation/Flocculation
— Steam Stripping
— Activated Carbon Adsorption
or Contract Hauling*
BAT Option II plus end-of-pipe
Activated Carbon Adsorption
or Contract Hauling*
* Contract Hauling is used for flows of less than 500 gpd.
Source: Industrial Technology Division, U.S. EPA
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4-6
4.5.2 BAT Options
BAT options are developed to control priority and nonconventional
pollutants. Table 4-3 summarizes these options. BAT Option 1 is based on
biological treatment equal to any one of the the BPT options. Therefore,
each BPT option is also an option for BAT. BAT Option II is based on
biological treatment plus a variety of in-plant controls for wastestreams
containing metals, volatile organic chemicals and base-neutral or acid prio-
rity pollutants. BAT Option III consists of BAT Option II controls plus
end-of-pipe activated carbon adsorption treatment.
4.5.3 PSES Options
PSES options are developed to control priority and nonconventional
pollutants discharged from indirect dischargers. Table 4-4 summarizes the
options.
The Agency is considering the full range of technology options for
indirect dischargers that are under consideration for BAT. Among them,
three options have been identified as most appropriate. PSES Option I
controls those pollutants that pass through the POTW to the levels calcu-
lated for BAT Option II. PSES Option II is based on PSES Option I plus
control to BAT levels for those pollutants thought to interfere with POTW
operations. Both of these options are based on a variety of in-plant
physical/chemical controls, and where necessary, end-of-pipe biological
treatment or multimedia filtration. EPA is also considering a third option
based on in-plant physical/chemical treatment only (PSES Option III).
Under this option, most of the pollutants would be controlled to BAT levels;
however, some pollutants would have less stringent effluent limitations.
4.5.4 NSPS and PSNS Options
The regulatory options for new source regulations (NSPS and PSNS) for
priority and nonconventional pollutants are identical to those considered
for existing dischargers. Because the effluent guidelines are concentration-
based rather than mass-based (based on production levels), in-plant and in-
process controls relating to water re-use and recycle cannot be appropriately
considered for the purposes of this rule.
4.6 Consideration of Other Environmental Regulations
4.6.1 Resource Recovery and Conservation Act (RCRA)
The amendments to RCRA enacted in November 1984 (P.L. 98-616) require
that plants applying for RCRA permits must assess whether their wastewater
treatment systems contribute to groundwater contamination. As a result of
this provision, any OCPSF plant that requires a RCRA permit, either because
it deals with hazardous materials in its production process or because the
sludge from the wastewater treatment systems is considered hazardous, must
submit descriptive information concerning the wastewater treatment system
tanks for a preliminary assessment. This information would not include
sampling and analysis. This initial permit application effort would result
in a one-time cost of $17,600, or an annualized cost of less than $3,000
per year.*
* "Unit Cost Estimates for Wastewater Treatment Systems," Economic Analysis
Branch, Office of Solid Waste, U.S. EPA, February 28, 1985.
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4-7
Table 4-4. PSES Technology Options
PSES Option
Description
PSES Option I
For those pollutants that pass
through the POTW
— with metals
— with volatile organic
chemicals
— with base-neutral or acid
priority pollutants
PSES Option II
For those pollutants that pass
through or interefere with POTWs
PSES Option III
In-Plant Controls:
— Coagulation/Flocculation
— Steam Stripping
— Activated Carbon Adsorption
or Contract Hauling*
Plus end-of-pipe biological
treatment or filtration (for
selected pollutants)
In-Plant Controls plus end-of-
pipe biological treatment or
filtration (for selected
pollutants)
In-Plant Controls Only.
* Contract Hauling is used for flows of less than 500 gpd.
Source: Industrial Technology Division, U.S. EPA
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4-8
In addition, the RCRA amendments require that plants with aerobic and
anaerobic lagoons which do not include aggressive aeration systems be
monitored to ensure that chemicals do not leach from the lagoons. If
monitoring determines that such leaching occurs, the lagoons must be double-
lined. The nature, extent and cost of such monitoring and lagoon-lining
have been estimated by the Agency for this industry.
The initial permit application costs are estimated to total $2.8 million
annually for 870 plants. The monitoring costs are expected to total $5.1
million annually for 103 plants, while the lagoon liner costs are estimated
to total $30.7 million in capital investment costs for 22 plants.
The initial permit application costs are included as part of the base-
line analysis in Section 5. The analysis of the baseline, including all three
cost components for the RCRA amendments and the effects of the incremental
treatment costs for effluent guidelines, is contained in Appendix 6B.
4.6.2 Comprehensive Environmental Response, Compensation, and Liability
Act (CERCLA or "Superfund")
The CERCLA, or "Superfund" supplies funds for cleanup of abandoned waste
dumps. The funds are generated through general tax revenues and through a
special petrochemical "feedstock" tax. The taxes are charged to petrochemical
companies producing basic chemicals that are used elsewhere in the organic
chemical industry. The Superfund authorization expires this year, but
reauthorization of the legislation is expected.
One of the outstanding issues for the reauthorization is the amount of
funding and the type of funding mechanisms to be used. To the extent taxes
are imposed on petrochemical or general manufacturing facilities, the general
health and competitiveness of OCPSF plants in world markets might become an
issue. No assessment of the impacts of the variety of proposals is made in
this analysis. The Agency expects to include a baseline assessment for the
final rule of the taxes that will be imposed under the reauthorization bill.
4.7 Estimation of Treatment Costs
4.7.1 Treatment Costing
The components of the engineering costs are developed by the Industrial
Technology Division of EPA. The major categories of costs that are estimated
for the treatment technologies discussed in Section 4.4 are:
o capital equipment
o land
o operation and maintenance
o sludge treatment and disposal
o monitoring (for NPDES Applications)
o compliance monitoring
In calculating total annual compliance costs, the sludge treatment and
disposal costs and the compliance monitoring costs are added to the remaining
operation and maintenance costs for a total operation and maintenance estimate.
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4-9
Land costs are added to capital equipment costs for a capital investment cost
category. These treatment costs are annualized over 10 years based on nominal
costs of capital. For small plants, the rate is 16.2 percent and for large
plants it is 14.2 percent. (See Appendix 3-G).
All costs are estimated on a plant-by-plant basis. The treatment
costs are incremental from the current treatment in-place at the plants.
Table 4-5 presents the estimated capital, operation and maintenance and
total annualized costs for each option.
4.7.2 BPT Costing
Because the effluent limitations for the BPT Options were not available
at the time the plant treatment costs were developed, the Agency set target
effluent levels and determined the required cost for plants to meet each
target. The target effluent levels are summarized in Table 4-6.
Each plant was designated based on 308 survey data as an organic
chemicals or a plastics/synthetics manufacturer for the purposes of costing.
Estimates were made of compliance costs necessary to achieve each target
effluent level for the plant. Plants designated as organics were costed to
five target levels; those designated as plastics/synthetics were costed to
four target levels.
Once the effluent levels for the three BPT technology bases had been
determined, a cross match was performed to match the appropriate target
effluent level to the effluent level associated with the BPT options.
Table 4-7 summarizes the matching process for BPT Options I and II. These
matches result in cost estimates for each BPT option. Because the target
effluent levels matched are more stringent than the actual effluent levels
for the technology options, the costing method overstates both the treatment
costs and economic impacts. In addition, while the subcategory average
effluent levels between the two technology bases differ somewhat, many
of the same costing target effluent levels are chosen for each; therefore,
estimating the incremental cost and impact of BPT Option II over BPT
Option I is difficult.
4.7.3 BAT and PSES Costing
The costing for BAT Option L is based on the BPT costing method described
above. A small number of direct dischargers will be able to meet the BPT
limitations without installing any biological treatment. These dischargers
will have to install in-process controls in order to meet priority pollutant
limitations based on biological treatment. These costs are not explicitly
estimated but will be included for the final rule.
Costs for BAT Option II are estimated for process controls based on
the pollutants which would be found given the information on the plant's
product processes. Costs for BAT Option III are based on installing carbon
adsorption after the in-process controls and biological treatment.
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4-10
Table 4-5. Summary of OCPSF Treatment Costs by Regulatory Option
(1982 $ millions)
Regulatory
Option**
BPT Option I
BPT Option II
BAT Option II
BAT Option III
PSES Option II
PSES Option III
Number of Plants
Incurring Costs
304
304
306
306
404
404
Treatment Costs*
Capital
Investment
277.2
294.2
607.2
1,437.1
303.8
189.2
Operation &
Maintenance
77.8
82.4
298.1
400.9
107.7
99.0
Total
Annualized
131.0
138.9
414.7
676.8
166. 1
135.3
* For the BPT and PSES Options, costs are incremental to current treatment
in place. For the BAT Options, the costs are incremental to BPT Option II.
** As noted in the text, BPT Option III, BAT Option I and PSES Option I are
not explicitly costed for this analysis.
Source: EPA Estimates
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4-11
Table 4-6. BPT Costing Targets for Estimating
OCPSF Plant Treatment Costs
BPT Costing Target
Target Effluent Level
BOD TSS pH
(mg/1) (mg/1)
Organic Chemicals+
BPT 1
BPT 2
BPT 3
BPT 4
BPT 5
100
70
45
20
*
100
70
45
20
*
6-9
6-9
6-9
6-9
6-9
Plastics/Synthetics'
BPT 1
BPT 2
BPT 3
BPT 4
20
15
10
50
30
15
*
6-9
6-9
6-9
6-9
* For BPT 5 for Organics and BPT 4 for Plastic's, costing is based on
end-of-pipe activated carbon adsorption beyond treatment required for
the previous option. No target BOD and TSS levels were established at
the time of costing.
+ The organic chemical subcategories are Bulk Organics, Commodity Organics,
Specialty Organics and Thermoplastics and Organics.
++ The plastics and synthetic fibers subcategories are Rayon, Other Fibers,
Thermosets and Thermoplastics.
Source: Industrial Technology Division, U.S. EPA
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4-12
Table 4-7. BPT Effluent Limitation
Averages and Options by OCPSF Subcategory
BPT
Subcategory*
Bulk Organics
Rayon
Commodity Organics
Other Fibers
Specialty Organics
Thermoplastics Only
Thermoplastics and
Organics
Thermosets
Technology Basis of BPT Effluent Limitations
BPT I
Biological Treatment
Without Polishing Ponds
Eff. Level**
(BOD/TSS)
25/40
19/40
28/99
11/20
35/6/
18/34
28/52
14/46
Costing
Target
4
2
4
3
4
2
4
4
BPT II
Biological Treatment With
and Without Polishing Ponds
Eff. Level**
(BOD/TSS)
27/46
19/40
28/99
10/20
35/62
18/29
25/40
24/46
Costing
Target
4
2
4
3
4
3
4
2
* For reporting purposes, the organic chemicals producers are split into
three additional groups: Organics (Part A) and Organics, NEC, and Others.
** Reported in milligrams per liter.
Source: Industrial Technology Division, U.S. EPA
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4-13
Only PSES Option II has been costed fully on a plant-by-plant basis.
The costing is performed using the method described for BAT Option II.
PSES Option I has not been explicitly costed for this analysis, though the
costs are expected to be less than the costs for PSES Option II.
PSES Option II costs are estimated by calculating plant-by-plant costs
for a random sample of thirty indirect discharge plants. These costs include
in-process controls and, where necessary, end-of-pipe biological treatment
or multi-media filtration to ensure pollutant control equal to BAT levels.
Average percentage cost increases in going from PSES Option III (in-process
controls only) to PSES Option II are calculated across all 30 plants.
The sludge treatment and monitoring costs under PSES Option II are not
expected to increase over PSES Option III costs. Operation and maintenance
costs are projected to increase by 11 percent, while land and capital equip-
ment costs are estimated to increase by 226 and 56 percent, respectively.
Each of these increases is applied to the appropriate cost component for
the individual plant PSES Option III costs to derive plant-specific costs for
PSES Option II.
Overall, the estimated costs for PSES Option II are expected to be fairly
accurate. The individual plant estimates are less accurate. The costs will
follow the more detailed approach for the final rule.
4.7.4 Plants Costed Versus Plants Analyzed
Table 4-8 presents the numbers of plants that are subject to this
regulation, the numbers of plants that are expected to incur costs, and the
numbers of plants for which economic impacts are estimated. A total of 997
plants are expected to be covered by the regulations. Of this total., EPA
estimates that 710 plants (71 percent) will actually incur costs as a result
of the regulations. Seventy-three of the 710 plants have been excluded from
the economic analysis for a number of reasons, including the fact that the
plant may have failed to report its production and sales by 4-digit SIC
code and that the plant did not report any production or sales within the
5 SIC codes used in this analysis.
All compliance cost estimates in this report are based on the total
710 plants that were costed. The economic analysis impacts are reported
based on the 637 plants analyzed.
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Section 5
Baseline
This section presents the baseline 1988 conditions for the OCPSF
industry which are the context for examining the impacts of pollution
control costs. This baseline is described on several levels:
macroeconomic, industry, firm, plant, and product. The most important
levels are the latter three, especially the plant level. The 1988 baseline
plant level data, such as plant sales, capital expenditures and employment,
are specific inputs to the impact analyses.
5.1 Macroeconomic Baseline
The macroeconomic baseline defines the general economic environment in
which the OCPSF industry is projected to operate in 1988 when the wastewater
treatment regulations are expected to be implemented. This baseline is
based on the DRI trend forecast for the U.S. economy performed in
June 1984. Subsection 5.1 first presents the general economic environment
over the period from 1982 (when the §308 Survey of the OCPSF industry was
conducted) to 1988, and then discusses specific factors concerning demand
and cost for the OCPSF industry.
5.1.1 General Economic Environment
Overall, the economy in real GNP terms is projected to grow at a
moderate rate of 3.6 percent annually between 1982 and 1988, or by about a
total of 24 percent. The growth of different GNP expenditure components and
other economic indicators is shown in Table 5-1.
As can be seen in Table 5-1, fixed investment is expected to exhibit the
greatest growth, particularly in the residential area. Inventory investment
will be stagnant as it will remain relatively constant in current terms, in
part due to trends toward more efficient inventory operations and,
therefore, lower inventory-to-sales ratios.
The federal government deficit is forecasted to continue to be high,
about 170 to 200 billion dollars in current terms, although gradually
decreasing in real terms. These deficits are not expected to significantly
limit investment funds nor exert significant upward pressure on interest
rates. The prime rate is expected to fall from nearly 15 percent in 1982 to
about ten percent in 1988.
On the production side, industrial output is projected to increase at
5.6 percent annually. Manufacturing capacity utilization will increase from
71 percent in 1982 to about 85 percent in 1988. This increase in capacity
utilization arises from production growth that is twice as rapid as capacity
expansion, six percent versus three percent annually.
The unemployment rate is expected to fall from its 1982 level of
9.6 percent to 7.2 percent in 1988. During this period total employment is
expected to increase by about 14 percent or 2.2 percent annually.
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5-2
Table 5-1. Macroeconomic Baseline
Economic Indicators
Real GNP
GNP Expenditure Components:
Personal Consumption
Fixed Investment
Non-residential
Residential
Government Purchases
Inventory Investment
Federal Deficit
Prime Rate (percent change in prime rate)
Industrial Production
Manufacturing Capacity Utilization
Unemployment
Total Employment
Consumer Price Index (all urban consumers)
Producer Price Index (finished goods)
Real Growth 1982-1988
Annual
Percent
3.6
3.3
Total
Percent
24
21
6.3
10.1
2.6
25.4
2.5
-4.5
5.7
3.0
-0.4
2.2
5.1
4.6
44
78
17
-288
16
-30
39
19
-2
14
34
31
Source: Data Resources Inc., Chemical Service, DRI Chemical Model 1988
Forecast Results, August 21, 1984.
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5-3
Inflation is expected to be moderate, with the consumer price index
increasing at about five to six percent annually between 1984 and 1988. The
producer price index is expected to increase similarly.
5.1.2 Industry Specific Demand Factors
The most important demand factors for this industry are: (1) for domestic
markets: personal consumption, housing starts, and automobile sales; and
(2) for international markets: strength of the U.S. dollar, foreign economic
growth and growth of foreign OCPSF producers. Available data on the baseline
growth of these factors are shown in Table 5-2.
Total personal consumption is projected to grow by 3.3 percent annually.*
This consumption growth is partly due to the gradual downward trend in
unemployment and the gradual increase in real wages.
Housing starts are an important demand indicator for the OCPSF industry
because OCPSF materials are used both in construction and in the furnishing of
the house. Housing starts grew tremendously (54 percent) from 1982 to 1983;
however, between 1983 and 198-8 they are expected to grow at about 2.4 percent
annually. The value of residential construction follows a similar trend with
a very high growth from 1982 to 1983 and subsequent growth of about
5.0 percent annually. The 1982 to 1983 increase in housing starts is
partially due to the large decrease in housing starts the previous year, as
well as to the mortgage interest rate decrease from 16.6 to 13.4 percent. The
continued growth of housing starts between 1983 and 1988 can be partially
accounted for by: (1) the relatively steady and slightly falling mortgage
rate, to about 12.4 percent in 1988; (2) slightly decreasing unemployment; and
(3) the above mentioned steady growth in personal consumption.
Automobile and automobile parts sales growth, also an important use of
OCPSF output, is expected to be the strongest area of personal consumption
growth. This area is projected to grow at about 7.4 percent annually (or .
total growth of 54 percent between 1982 and 1988) which is over twice the rate
for overall personal consumption. Retail unit car sales are expected to
increase from 8 to 11.1 million, or by about 5,6 percent annually.
With regard to foreign trade, the relative strength of the U.S. dollar has
recently limited OCPSF exports; however, over the 1982-to-1988 period the
dollar is forecasted to fall by nearly nine percent relative to the currencies
of main U.S. trading partners.
5.1.3 Industry Specific Cost Factors
The 1982 to 1988 outlook for important input costs for the OCPSF industry
is fairly favorable because interest rates, wages and energy/feedstock prices
* Real disposible income, however, is expected to grow at only 3.1 percent
annually. This difference is .reflected in a slightly declining trend in the
savings rate and an increasing trend in installment credit outstanding as a
percentage of disposible income.
-------
5-5
are not expected to increase as fast as industry wholesale prices. Projected
prices and input cost changes over this period are shown in Table 5-3.
The interest rates used in the impact analysis and the cost of debt will
decline over the baseline period as shown in Table 5-4.
5.2 industry Baseline
The growth rate for the OCPSF industry is expected to be slightly higher
between 1982 and 1988 than the average growth rate for all manufacturing
industries. Based on DRI macroeconomic trend forecasts, the outlook for
relevant production indices is shown in Table 5-5.
Synthetic materials, which are the largest segment of the OCPSF industry,
are expected to show significantly higher than average growth. This favorable
outlook for 1988 is also indicated by the other OCPSF and related end-use
production indices.
This strong growth is supported by the aggregate results of the production
forecasts by the DRI Chemical Service. The coverage of the Service as noted
in Section 2 is about 75 percent of the production of the OCPSF industry.* As
will be detailed in the next subsection, the forecast growth in real prices
and production between 1982 and 1988 is shown in Table 5-6.
Investment in plant and equipment for the chemical industry is projected
to increase by 29 percent in real terms between 1982 and 1988. Employment in
the chemical industry is projected to grow by only 2 percent between 1982 and
1988. Given the much larger production increase, the labor intensity of this
industry will continue to decline. For comparative purposes, employment in
the manufacturing sector is projected to grow by about 11 percent during this
period.
Exports have been a major market for chemical products, constituting about
10 percent of production in 1982. This market is projected to shrink to about
3 percent of production in 1988 due to increasing competition from foreign
producers of commodity chemicals, particularly from plants in energy-rich
countries.
5.3 Product Group Baseline
In this subsection, the'1988 outlook for the 12 product groups of the
OCPSF industry is discussed for each group individually by examining
production, price, capacity utilization and international trade trends. In
addition, product level detail within each group is presented whenever
possible. As presented in Section 2, the industry can be separated into two
* It should be noted that commodity chemicals are very well covered by the
DRI Chemical Service but that specialty chemicals are not fully covered.
-------
5-6
Table 5-3. Changes in OCPSF Prices and Input Costs
Real Growth 1982-1988
Prices and Input Costs
Wholesale Price Index (Chemical and Allied Products)
Unit Labor Costs*
Natural Gas
Crude Oil (Domestic & Foreign)
Petroleum Products
Electricity
Source: Data Resources, Inc., Chemical Servic
Forecast Results, August 21, 1984.
Annual
Percent
:ts) 4.2
3.6
4.6
1.1
1.5
5.6
DRI Chemical
Total
Percent
28
24
31
7
9
39
Model 1988
Table 5-4. Baseline Interest Rates
Debt Instrument
New AAA Bonds
Riskless Rate (12 Month T-bill)
Interest Rates, Percent
1982 1988 Change
13.89
12.28
11.08
9.05
-2.81
-3.23
Source: Data Resources, Inc., Chemical Service, DRI Chemical Model 1988
Forecast Results, August 21, 1984.
* Unit labor cost changes were calculated as the difference between
changes in the adjusted average hourly earnings for private non-farm
production workers and changes in output per hour non-farm business sector.
-------
5-8
Table 5-6. OCPSF Industry Growth Indicators
Real Growth 1982-1988
Industry Indicators
Intermediate Organic Chemicals
Real Prices
Production (billion Ibs.)
Production Value (billion $)
Final Products (Plastics, Fibers, etc.)
Real Prices
Production (billion Ibs.)
Production Value (billion $)
Investment in Plant and Equipment
Employment
Net Exports
Annual
Percent
4.5
5.8
10.3
3.1
7.0
10.3
4.3
0.3
-8.0
Total
Percent
30
40
80
20
50
80
29
2
-59
Source: Data Resources Inc., Chemical Service, DRI Chemical Model 1988
Forecast Results, August 21, 1984, and DRI Chemical Model 1982
Benchmark Case, July 3, 1984.
-------
5-9
parts: 1) intermediate (and basic) chemicals* (3 product groups); and
2) finished chemicals (9 product groups). According to 1982 production
levels, about 70 percent of intermediate chemicals in the study scope are used
to produce finished chemicals in study scope. The remaining 30 percent are
used as solvents or to produce other finished chemicals or other intermediate
chemicals. The division between intermediate and finished chemicals is not
perfect because about 10 percent of intermediate chemical production is for
final use (e.g. solvents) and about 10 to 20 percent of the finished chemicals
are truly intermediate chemicals (e.g. polymer precursors for fibers and
plasticizers).
The outlook for the OCPSF industry is primarily dependent on that for the
finished chemicals. The nine product groups of finished chemicals are
discussed here in approximate order of their importance, followed by a
discussion of intermediate and basic chemicals. Table 5-7 presents a summary
of the results. Production in the OCPSF industry is projected to increase by
about 40 percent between 1982 and 1988. Production growth by product group
ranges from 20 to 50 percent.
The purpose of the product level detail presented in this subsection is to
identify chemicals which are susceptible to impact from pollution control
costs. Because the outlook for the OCPSF industry, as presented in the
macroeconomic and industry baseline sections, is quite favorable through 1988,
it is useful to identify products which are projected to perform less
favorably than average. A general assumption of the impact methodology is
that 1988 will be at least as or more favorable than 1982. Therefore it is
important to identify products for which these assumptions might not be
applicable since the producers of these chemicals might warrant special
attention.
The indicators for "susceptible" chemicals are: (1) low projected
production growth; (2) low projected capacity utilization; and (3) significant
international trade markets. The first two indicators are of poor projected
performance independent of pollution control costs. The third measure is an
indicator of possible difficulties due to a deteriorating foreign trade
situation.
The selected quantitative definitions of these indicators are as follows.
The conservative definition of low production growth is when the growth for
the period 1982 to 1988 is less than that forecasted for real GNP,
i.e., 24 percent. As to capacity utilization, chemicals with 1988 forecasted
levels below 70 percent are identified.** With regard to international trade,
chemicals that have either net imports or exports*** greater than 10 percent
of their production levels are identified.
* Only a small amount of the basic feedstock chemicals are included in the
OCPSF industry. Those from coal (which constitute only about 5 percent of
total feedstock chemicals) are included and those from petroleum or natural
gas are not included.
** This level serves only as a general guideline since chemical specific
capacities can be misleading because often the equipment can be used to
produce a variety of chemicals.
*** Net refers to imports less exports or vice versa.
-------
5-10
Table 5-7. Summary of 1982-1988 Outlook for
OCPSF Product Groups
Production Volume
Finished Chemicals
1. Plastics and Resins
2. Synthetic Fibers
3. Miscellaneous End-Use
Chemicals and Chemical
Products
4. Plasticizers
5. .Cellulosic Fibers
6. Dyes
7. Organic Pigments
8. Rubber Processing Chemicals
9. Flavor and Perfume Materials
Subtotal
Billion Ib. |
1982 1988* |
Real Growth 1982-1988
Annual %* Total %
38.3 58.2
6.4 9.2
22.1 28.7
1.4
0.6
0.2
0.1
0.2
0.2
69.5
2.0
0.8
0.3
0.1
0.3
0.2
99.8
7.2
6.1
4.5
5.8
3.8
5.1
4.5
6.4
3.1
6.2
52
43
30
40
25**
35
30
45
20
44
Intermediate Chemicals
10. Miscellaneous Cyclic and
Acyclic Chemicals
11. Cyclic Intermediates
12. Tars (and Tar Crudes)
Subtotal
Total OCPSF Industry
81.5
37.6
4.0
123.1
106.8
56.8
4.6
7.1
jjA NA
163.6*** 4.9***
192.6 263.4***
5.5***
31
51
NA
33***
38***
Source: Data Resources, Inc., Chemical Service, DRI Chemical Model 1982
Benchmark Case, July 3, 1984 and DRI Chemical Model 1988 Forecast
Results, August 21, 1984; ITC, Synthetic Organic Chemicals: Prices
and Production for 1982, Publication No. 1422; Textile Qrganon,
January 1984; U.S. Department of Commerce, 1983 U.S. Industrial
Outlook.
* Calculated from 1982 production volume and ITC total real growth rate.
** Adjusted for potential negative impacts mentioned in Subsection 5.3.5.
*** Excludes tar and tar crudes.
-------
5-11
There are three basic causes of low production growth, the most important
indicator of "susceptible" chemicals: (1) low domestic demand for
(a) intermediate chemicals or (b) finished chemicals; (2) process changes; and
(3) unfavorable international trade situations. The second cause,
processchanges, is a special case of low domestic demand for an intermediate
chemical and could also be reflected in a deteriorating trade situation for a
downstream chemical. Each of the causes works both directly and indirectly:
directly when a chemical's demand is affected and indirectly when a major
derivatives' demand is affected.
The scope of this section is the chemicals covered by the DRI Chemical
Service forecasts which, on a production basis, cover about 75 percent of the
OCPSF industry. This coverage centers on the largest product groups:
(1) plastics and resins; (2) synthetic fibers; (3) miscellaneous cyclic and
acyclic chemicals; and (4) miscellaneous cyclic intermediates.
5.3.1. Plastics and Resin Materials (SIC 2821)
This product group is by far the most important in the OCPSF industry
accounting for about 55 percent of both the production and sales value of
finished OCPSF chemicals in 1982. The DRI Chemical Service covers about
85 percent of the production of this group. The DRI forecast indicates about
a 50 percent increase in plastics and resins production between
1982 and 1988. During this period real prices are expected to increase by
about 25 percent and value of production by nearly 90 percent. Capacity
utilization is projected to increase from a low 65 percent in 1982 to much
higher levels in 198.8. The forecast results, based on DRI coverage of this
product group, are shown in Table 5-8.
Domestic consumption* growth is expected to be strong whereas the
international markets are projected to be weak with exports falling and
imports rising significantly. In 1982, this group had one of the strongest
export markets in this industry; however, by 1988 this group is projected to
no longer have very large balance of trade surpluses.
Table 5-9 presents the price and production data for individual plastics
and resins. The chemical products in this category which show relatively poor
production growth are shown in Table 5-10.
As to low projected capacity utilization, only the rigid and flexible
polyurethane foams are expected to have utilization levels below 70 percent
in 1988, as shown in Table 5-11.
The international trade situation for plastics and resins is projected to
deteriorate significantly between 1982 and 1988, as shown in Table 5-12.
In 1982, net exports were greater than 10 percent of production for eight
chemicals, and by 1988 only three chemicals are projected to maintain these
high export levels. Six chemicals are projected to show significant (greater
than ten percent) decreases in export levels. Fortunately, for five of these
six chemicals, domestic demand is very strong; therefore, projected production
growth ranges from 47 to 121 percent between 1982 and 1988. The most
significantly affected chemical is high density polyethylene, whose exports
are projected to fall by 60 percent while imports increase on the order of 600
to 700 percent.
* Domestic consumption is defined as follows:
production = domestic consumption + exports - imports
-------
5-12
Table 5-8. Plastics and Resin Materials Baseline
Real Growth, 1982-1988
Economic Indicators
Production (millions Ibs.)
Domestic Consumption
Net Exports/Production(percent)**
Exports
Imports
Average Price (cents/lb.)
Value of Production (million^)
Capacity (announced expansions
mil Ibs.)
Capacity Utilization (percent)
1982
Value
2,800*
29,100
11.4
4,000
300
37
12,100
48460
65
1988
Value
49,900
48,500
2.7
2,300
1,000
46
22,800
50525
94
Annual
Percent
7.2
8.9
-1.5
-6.1
22.2
3.7
11.1
0.7
4.3
Total
Percent
52
67
-9
-41
268
24
89
4
29
Source: Data Resources, Inc., Chemical Service, DRI Chemical Model 1982
Benchmark Case, July 3, 1984 and DRI Chemical Model 1988 Forecast
Results, August 21, 1984.
* The 1982 ITC production level for this group is 38,300 million pounds,
** Net exports (exports less imports) as percent of production.
-------
5-13
Table 5-9. Price, Production, and Value of Production by Product for
Plastics and Resins (SIC 2821) and Synthetic Fibers (SIC 2824)
1982 and 1988
PLASTICS/RESINS
HDPE
LDPE
FVC
PVA latex
PVA bead
PV Alcohol
Polystyrene
SAN
ABS
Polypropylene
Polyester, unsat
Pol yure thane, plre
1 ,-flex. foan
" ,rigid foam
Polycarbonate
Epoxy Resin
EVA Polymer
U+M Forrthyd. Res
Phenol ic Resin
Nylon 6 Resin
Nylon 66 Resin
Polyester, sat.
Price
(c/lb)
25.5
33.5
26.9
50.1
48.3
85.2
37
52.1
52,1
34.9
45.6
58.9
107.1
109.9
118.3
55.8
34.8
17.5
40
94.9
91.7
50
— IYB^: -
Prod.
(rain Ib)
7503
4928
5328
381
139
108
3200
91
743
3477
865
172
1064
308
179
286
388
1131
1257
68
156
1031
~
Value
(inln *)
1913
1651
1433
191
67
92
1184
47
386
1213
394
101
1140
338
212
160
135
198
503
65
143
516
—
Price
(c/lb)
38
40.5
35.5
51.6
50.1
76.7
48.5
65.7
64.1
46.5
51.8
62.3
95.8
105.3
133.9
73.6
39.4
21.1
49.4
112.7
100.6
57
— 1*88 -
Prod.
(nln Ib)
9625
7247
7824
766
285
220
4912
168
1441
6020
1532
233
1092
215
413
504
815
2046
2189
150
323
1851
Value
(rain $)
3658
2935
2778
395
143
169
2382
110
924
2799
794
145
1046
226
553
371
321
432
1081
169
325
1055
*** lUlftL
Price
49
21
32
3
4
-10
31
26
23
33
14
6
-11
-4
13
32
13
21
24
19
10
14
/'. UHflNtJt ***
Prod. Value
28
47
47
101
105
104
54
85
94
73
77
35
3
-30
131
76
110
81
74
121
107
79
91
78
94
107
113
83
101
133
139
131
101
43
-8
-33
16!
132
138
118
115
162
127
105
Subtotal
37 32801 12082
46 49871 22811
24
52
89
FIBERS
Nylon Fiber
Acrylic Fiber
Polyester Fiber
94.5
105
53.4
1933
624
3169
1827
655
1692
108.2
117.8
60.9
3151
653
4402
3409
769
2681
Subtotal
73 5726 4174
84 8206 6859
14
12
14
15
63
5
39
43
87
17
58
64
Source: Data Resources, Inc. Chemical Service, DRI Chemical Model 1982
Benchmark Case, July 3, 1984 and DRI Chemical Model 1988 Forecast Results,
August 21, 1984.
-------
Subtotal
5-15
Table 5-11. Production, Capacity, and Capacity Utilization by Chemical
for Plastics and Resins (SIC 2821) and Synthetic Fibers (SIC 2824)
1982 and 1988
C.U.
7?
78
61
51
46
50
59
47
45
67
52
61
32
51
49
65
57
66
67
65
60
74
61
62
PLASTICS/RESINS
HOPE
LDPE
PVC
PVA latex
PWi bead
PV Alcohol
Polystyrene
SAN
ABS
Polypropylene
Polyester, unsat
Polyurethane,plri
1 ,flex. foais
1 , rigid -foara
Polycarbonate
Epoxy Resin
EUA Polymer
U+M Forrahyd. Res
Phenol ic Resin
Nylon 6 Resin
Nylon 66 Resin
Polyester, sat.
Subtotal *
FIBERS
Nylon Fiber
Acryl ic Fiber
Polyester Fiber
===
Prod.
( rain
7503
4928
5328
381
139
108
3200
91
741
3477
865
172
1064
308
179
286
388
1131
1257
68
156
1031 --
31530
1933
624
3169
= 1982
Capac
Ib )
9685
6340
8710
750
300
215
5400
195
1660
5185
1650
1750
950
350
587
600
2000
1900
233
48460
3236
847
5166
5726 9249
August 21, 1984.
:
Prod.
< nln
9625
7247
7824
766
285
220
4912
168
1441
6020
1532
233
1092
215
413
504
815
2046
2189
150
323
1851
47637
3151
653
4402
8206
= 1988 =
Capac.
Ib.)
10435
6780
8285
750
300
275
5605
195
1660
5185
1800
1750
950
485
587
750
2000
2500
233
50525
3236
847
5166
9249
:. Chemical
' *** TOTAL '/. CMNGE ***
C.U,
(X)
92
107
94
102
95
80
88
86
87
116
85
62
23
85
86
109
102
88
139
94
97
77
65
89
Service, DRI
1 and DRI Chemical Model
Prod.
28
47
47
101
105
104
54
85
94
73
77
35
3
-30
131
76
110
81
74
121
107
79
51
63
5
39
43
Capac
8
7
-5
0
0
28
4
0
0
0
9
0
0
39
0
25
0
32
0
4
0
0
0
0
Chemical
1988
. C.U.
15
29
33
51
49
30
28
39
42
49
33
2
-10
34
37
44
46
21
72
29
38
3
24
27
Model 1982
Forecast Results
* Chemicals with missing data were not included.
-------
5-16
Table 5-12. International Trade Situation by Chemical for
Plastics and Resins (SIC 2821) and Synthetic Fibers (SIC 2824)
1982 and 1988
————— jytj^ — — — — ——
PLASTICS/RESINS
HOPE
LDPE
PVC
PVA latex
PVA bead
PV Alcohol
Polystyrene
SAN
ABS
Polypropylene
Polyester, unsat
Polyurethane,plni
' ' ,flex. •foam
1 ,rigid foam
Polycarbonate
Epoxy Resin
EVA Polymer
U+H Forrahyd. Res
Phenolic Resin
Nylon 6 Resin
Nylon 66 Resin
Polyester, sat,
Export
1224
951
561
2
4
23
95
10
59
809
8
0
0
0
50
39
0
20
19
13
20
90
Import
nln Ib)
36
26
116
4
7
22
0
0
13
6
2
0
0
0
1
5
0
8
18
1
4
3
Prod
7503
4928
5328
381
139
108
3200
91
741
3477
865
172
1064
308
179
286
388
1131
1257
68
156
1031
Net Expt.
as 7. of
Prod.*
16
19
8
-1
-2
1
3
11
6
23
1
0
0
0
27
12
0
1
0
18
10
8
Export
»
495
534
196
4
9
25
42
20
82
471
8
0
0
0
80
40
0
22
30
12
24
50
— — — 1700 — — — — —
Ifiport
nln Ib)
277
173
398
5
8
25
0
0
0
10
9
0
0
0
0
8
0
4
32
10
40
3
Prod
9625
7247
7824
766
285
220
4912
168
1441
6020
1532
233
1092
215
413
504
815
2046
2189
150
323
1851
Net Expt.
as '/. oi
Prod.*
2
5
-3
0
0
0
1
12
6
11
0
0
0
0
19
6
0
1
0
1
' -5
3
*** iota I percent unange ****
Export
-60
-44
-65
100
125
9
-56
100
39
-17
0
60
3
10
58
-8
20
-44
Import
669
565
243
25
14
14
-100
67
350
-100
60
-50
78
900
900
0
Prod
28
47
47
101
105
104
54
85
94
73
77
35
3
-30
131
76
110
81
74
121
107
79
Net Exji
'A of
ProdH
-14
-14
-11
0
3
-1
-2
1
-1
-12
-1
0
0
0
-8
-6
0
0
0
-16
-15
-6
Subtotal
3997
272 32801
11
2344 1002 49871
-41
268
52
-9
FIBERS
Nylon Fiber
Acryl ic Fiber
Polyester Fiber
119
174
277
29
13
13
1933
624
3169
5
26
8
108
127
200
146
37
25
3151
653
4402
-1
14
4
Subtotal
570
55 5726
435
208 8206
-9
-27
-28
-24
403
185
92
278
63
5
39
43
-6
-12
-4
Source: Data Resources, Inc. Chemical Service, DRI Chemical Model 1982
Benchmark Case, July 3, 1984 and DRI Chemical Model 1988 Forecast Results,
August 21, 1984.
* Exports less imports as a percent of production.
** 1988 level minus 1982 level.
-------
5-17
5.3.2 Synthetic Fibers (SIC 2824}
Although synthetic fibers accounts for only about 10 percent of the
production of finished OCPSF chemicals, this group accounts for 25 percent of
the value of industry sales in 1982. The DRI Chemical Service covers about
90 percent of this group/ and the outlook for this group is about a 40 to 45
percent increase in production between 1982 and 1988. The real average price
is expected to increase 15 percent and therefore the value of production would
increase by nearly 65 percent. Capacity utilization is expected to increase
from about 60 percent in 1982 to well over 80 percent in 1988. The DRI
Chemical Service provides the forecasts presented in Table 5-13.
As is generally true in this industry, domestic consumption for this group
is projected to grow significantly faster than production because of declining
exports and increasing imports.
Table 5-9 also presents the DRI product coverage for synthetic fibers.
Whereas the forecast for almost all products within this group are favorable,
one fiber - acrylic - is not projected to do well, as listed in Table 5-14.
Low projected domestic demand growth for acrylic fiber is compounded by a
decline in exports which are a.major market for acrylic fiber. The declining
international market does not significantly effect nylon and polyester fibers;
see Table 5-12. The projected 1988 capacity utilization levels are above
70 percent for all fibers; see Table 5-11.
5.3.3 Miscellaneous End-Use Chemicals and Chemical Products (SIC 2869-6)
Because this group is a collection of unrelated chemicals, assessing its
outlook requires identification of its major subgroupings as of 1982; these
are listed in Table 5-15. Based on this breakdown, on a production basis,
polymers for fiber production account for about 50 percent of this product
group. In terms of value of sales, additives for lubricating oil and greases
and for fuels account for 33 percent and 23 percent, respectively, of the
product group.
The production outlook for this group is presented in Table 5-16 as a
weighted average of projected growth of four of its five major subgroups. The
growth estimates are based on the assumptions discussed in the three following
subsections.
5.3.3.1 Lubricant Additives. The market for these chemicals is primarily
(80 percent) for automobiles and other vehicles. The outlook for these
additives is favorable because of the increase in performance standards for
vehicle lubricants. Therefore, as a conservative growth projection, it was
assumed that these additives would grow slightly faster than real GNP or by
about 30 percent.
5.3.3.2 Fuel Additives. Gasoline additives compose over 95 percent of
the fuel additives market. Of this total market, methyl-t-butyl ether (MTBE)
and the various organo-lead and related chemicals accounted for 57 and
36 percent, respectively, of production in 1982. The organo-lead compounds
-------
5-18
Table 5-13. Synthetic Fibers Baseline
Real Growth, 1982-1988
Economic Indicators
Production (millions Ibs.)
Domestic Consumption
Net Exports/Production (percent)
Exports
Imports
Average Price (cents/lb.)
Value of Production (million^)
Capacity (announced expansions
mil Ibs.)
Capacity Utilization (percent)
1982
Value
5700*
5200
9
570
55
73
4200
9249
62
1988
Value
8200
8000
3
440
210
84
6900
9249
89
Annual
Percent
6.3
7.4
1.0
-3.5
25.0
2.4
8.6
0
4.1
Total
Percent
43
53
-6
-24
278
15
64
0
27
Source: Data Resources, Inc., Chemical Service DRI Chemical Model 1982
Benchmark Case, July 3, 1984 and DRI Chemical Model 1988 Forecast
Results, August 21, 1984.
Acrylic Fiber
Table 5-14. Poor Growth Products in the
Synthetic Fibers Group
1982 to 1988
Real Growth in Production
Percent Causes
5 Low demand; International trade
Source: Data Resources, Inc., Chemical Service DRI Chemical Model 1982
Benchmark Case, July 3, 1984 and DRI Chemical Model 1988 Forecast
Results, August 21, 1984.
* The 1982 ITC production level for the group is 6,400 million pounds,
-------
5-19
Table 5-15. Major Subgroups* of Miscellaneous End-Use Chemicals
and Chemical Products
Subgroup
Production Sales Volume Value of Sales
(million pounds) (million pounds) (million $)
Lube Oil and
Grease Additives
1520
1100
930
Product Type
Finished
Chemicals
Gasoline and Other
Fuel Additives
1440
1160
650
Finished
Chemicals
Cellulose Acetate
1000
300
350
Intermediate
Chemicals
to Fibers
Cellulose Ethers
and Esters
150
120
230
Intermediate
Chemicals
to Plastics
Polyester, Nylon, 4750
and Acrylic
Polymers
Total 8860**
90
2270**
60
2220**
Intermediate
Chemicals
to Fibers
Source: U.S. International Trade Commission, Synthetic Organic Chemicals, 1982.
* Based on 1982 data.
** These totals represent 40 percent of the ITC 1982 Total Miscellaneous
Products production volume, 85 percent of the 1982 ITC sales volume and
80 percent of the 1982 sales value, respectively. However, the high 1982
production level of 22 billion pounds listed by ITC for this product group
includes 12.7 billion pounds of 'other miscellaneous" chemicals of which only
one percent were sold. Production in this "other" subgroup increased by over 10
billion pounds from 1981 to 1982 despite the significant decreases experienced
by most OCPSF chemicals. Historically production of this "other" chemicals
subgroup has only been about several hundred million pounds. This unlikely
increase might reflect some sort of reporting error; and if ignored, the five
subgroups listed above account for about 90% of the ITC production level for
this product group.
-------
5-20
Table 5-16. Miscellaneous End-Use Chemicals Real Growth, 1982-1988
Subgroup
Percent Share
of Overall
Product Group Production
Production Volume* Growth
Polymers for Synthetic Fibers 50
Lubricant Additives 15
Gasoline Additives 15
Cellulose Acetate 10
Other 10
Weighted Average
40
30
0
25
25
30
Growth Indicators
Synthetic fibers**
***
Cellulosic
Real GNP
fibers***
Source: Data Resources, Inc., Chemical Service, Data Resources, Inc., Chemical
Service, DRI Chemical Model 1982 Benchmark Case, July 3, 1984 and PRI
Chemical Model 1988 Forecast Results, August 21, 1984, and U.S.
International Trade Commission, Synthetic Organic Chemicals, 1982.
* Based on 1982 production levels.
** See Section 5.3.2.
*** See discussions in text Sections 5.3.3.1, 5.3.3,2., and 5.3.3.3.
include tetraethyl- and tetramethyl- lead and ethylene dibromide which is
usually included as part of the octane booster. The DRI Service forecasts
32 percent production growth for MTBE. This growth together with the
continuing decrease in leaded additives (assumed to be about 50 percent over
the period to 1982 and 1988) leads to a conservative zero growth forecast for
these additives from 1982 to 1988.
5.3.3.3 Cellulose Acetate. A 1975 production breakdown for cellulose
acetate end uses is presented in Table 5-17. The weighted average growth from
1982 to 1988 for cellulose acetate is based on projected changes in its major
end uses, over the baseline period. Using production indices for the growth
indicators for the end uses, weighted by the percent share of cellulose
acetate production used for each end use, a real growth rate for the period is
estimated. The weighted average growth rate shown in this table (i.e., 30
percent) is probably slightly high due to the heavy reliance on textile mill
products growth as defined by the 1975 production breakdown. Therefore, a
25 percent production growth estimate from 1982 to 1988 for cellulose acetate
(as shown in Table 5-16) would be more realistic and consistent with less
emphasis on this component.
-------
5-21
Table 5-17. Cellulose Acetate Real Growth, 1982-1988
Percent End-Use Indicator Growth
Share of Product from 1982-1988
Major End-Use Production* Growth Indicator (percent)
Textile Yarn 48 Textile mill products 35**
Cigarette Filter Tow 24 Tobacco products 4**
Plastics 20 Plastics and resin materials 50***
Non-Cigarette Staple Tow 8 Real GNP 25
Weighted Average 30
Source: Data Resources, Inc., Chemical Service, DRI Chemical Model 1988
Forecast Results, August 21, 1984, and Lowenheim, Frederick A. and
Marguerite K. Moran, Faith, Keyes, and Clark's Industrial Chemicals,
Fourth Edition, John Wiley & Sons, 1975, p. 241.
* Based on 1975 production levels in Faith, Keyes, and Clark's Industrial
Chemicals, Fourth Edition.
** Derived from production indices in DRI Chemical Model 1988 Forecast
Results.
*** See Section 5.3.1.
5.3.4 Plasticizers (SIC 2869-3)
Although plasticisers are finished chemicals, their end-uses are nearly
totally within the OCPSF industry; 65 percent are used in vinyl plastics,
20 percent in other plastics, ten percent in rubber compounds, and
five percent in other products. The growth outlook for this group primarily
depends on that for flexible plastics, most importantly polyvinylchloride
(PVC). The 1988 outlook is the weighted average of the end-use growth
forecasts presented in Table 5-18.
5.3.5 Cellulosic Fibers (SIC 2823)
The 1979 breakdown of cellulosic fibers end-uses are shown in Table 5-19
along with projected baseline growth estimates. The use of these proxy growth
indicators by end-use segment and their corresponding production indices
forecast by DRI leads to a forecast production weighted average growth from
1982 to 1988 of 35 percent for the product group. However, this projection
does not take other potentially significant circumstances into account, such
as the relative demand for cellulosic fibers versus synthetic fibers, which
might lower expected growth.
-------
5-22
Table 5-18. Plasticisers Real Growth, 1982-1988
Major End-Use
Flexible PVC
Other Plastics
Rubber
Other
Weighted Average*
Percent End-Use
Share of Product
Group Production
65
20
10
5
Growth Indicator
Indicator Growth
from 1982-1988
(percent)
Chemical specific
production forecast
Average plastics production
Rubber production index
Real GNP
40
50**
40
25
40
Source: Data Resources, Inc., Chemical Service, DRI Chemical Model 1988
Forecast Results, August 21, 1984, and Kline Guide to the Chemical
Industry, Fourth Edition, Charles H. Kline & Co. Inc., 1980.
* Based on end-use share of 1979 production.
** See Section 5.3.1.
Table 5-19. Cellulosic Fibers Real Growth, 1982-1988
Major End-Use
Percent End-Use
Share of Product
Group Production
Apparel
Medical, Surgical,
Sanitary goods
Home Furnishings
Other
40
20
20
20
Growth Indicator
Apparel & allied products
Household furniture (proxy)
Drugs and medicine(proxy)
Real GNP
Growth Indicator
Rate (percent)
38
41
34
24
Weighted average*
35
Source: Data Resources, Inc., Chemical Service, DRI Chemical Model 1988
Forecast Results, August 21, 1984, and Textile Organon,
September/October 1983.
* Based on end-use share of 1982 production.
-------
5-23
5.3.6 Dyes (SIC 2865-2)
The forecast for growth in the demand for dyes is based on the projected
changes in textiles and paper, since the major use of dyes is for coloring
these products. Using the production indices for these end-uses forecast by
DRI, the expected growth for dyes is presented in Table 5-20.
Table 5-20. Dyes Real Growth, 1982-1988
Percent End-Use Indicator Growth
Share of Product from 1982-1988
Major End-Use Group Production Growth Indicator (percent)
Textiles 75 Textile mill products 35**
Paper 20 Paper and products 31
Weighted average* 35
Source: Data Resources, Inc., Chemical Service, DRI Chemical Model 1988
Forecast Results, August 21, 1984, and Kline Guide to the Chemical
Industry, Fourth Edition, Charles H. Kline & Co. Inc., 1980.
* Based on end-use share of 1979 production.
** Historical analysis of U.S. shipments of dyes between 1960 and 1980
indicates a very close relationship to shipments of textile mill products,
according to the Kline Guide to the Chemical Industry, Fourth Edition, Charles
H. Kline & Co., 1980, p. 285.
5.3.7 Organic Pigments (SIC 2865-3)
The 1988 outlook for organic pigments is shown in Table 5-21. The
projected growth rate of 30 percent is estimated based on DRI production
indices as described above for other product groups.
-------
5-24
Table 5-21. Organic Pigments Real Growth, 1982-1988
Major End-Use
Printing Inks
Paints
Plastics
Weighted average*
Percent End-Use
Share of Product
Group Production
45
35
10
Growth Indicator
Indicator Growth
from 1982-1988
(percent)
Printing and publishing
Paints production
Plastics and
resin materials
28
30
50**
30
Sources: Data Resources, Inc., Chemical Service, DRI Chemical Model 1988
Forecast Results, August 21, 1984, and Kline Guide to the Chemical
Industry, Fourth Edition, Charles H. Kline & Co. Inc., 1980.
* Based on end-use share of 1979 production.
** See Section 5.3.1.
5.3.8 Rubber Processing Chemicals (SIC 2869-3)
Rubber processing chemicals production is expected to grow by 45 percent
over the period from 1982 to 1988 based on DRI production indices forecasts
(see Table 5-22).
Table 5-22. Rubber Processing Chemicals Real Growth, 1982-1988
Major End-Use
Tires
Mechanical goods
Footwear
Weighted average*
Percent End-Use
Share of Product
Group Production
65
20
Growth Indicator
(percent share
of end-use)
Indicator Growth
from 1982-1988
(percent)
Tires
Rubber excluding tires (37)
Non-electrical machinery (52)
Rubber excluding tires (37)
Apparel and allied products (38)
43
45
38
45
Source: Data Resources, Inc., Chemical Service, DRI Chemical Model 1988
Forecast Results, August 21, 1984, and Kline Guide to the Chemical
Industry, Fourth Edition, Charles H. Kline & Co. Inc., 1980.
* Based on end-use share of 1979 product group production and growth
indicator proportion for each end-use with more than one growth indicator.
-------
5-25
5.3.9 Flavor and Perfume Materials (SIC 2869-3)
The 1988 outlook for flavor and perfume materials is shown in Table 5-23.
Table 5-23. Flavor and Perfume Materials Real Growth, 1982-1988
Percent End-Use
Share of Product Indicator Growth
Major End-Use Group Production Growth Indicator Rate (percent)
Food and Soft Drinks 65 Food and allied products 20
Toiletries,
Cosmetics,
Detergents 25 Soaps and toiletries 23
Weighted average* 20
Source: Data Resources, Inc. Chemical Service, DRI Chemical Model 1988
Forecast Results, August 21, 1984, and Kline Guide to the Chemical
Industry, Fourth Edition, Charles H. Kline & Co. Inc., 1980.
* Based on end-use share of 1979 production.
5.3.10 Miscellaneous Cyclic and Acyclic Chemicals (SIC 2869-7)
This product group consists primarily of chemical intermediates (about
90 percent acyclic on a production basis) and to a lesser degree of finished
chemicals such as solvents. In 1982, production in this group amounted to
81 billion pounds, about 40 percent of total OCPSF industry production. The
DRI Chemical Service covers about 65 percent of the production of the group
(including implicit intermediates such as ethylene dichloride (EDO). This
coverage includes all chemicals (except two chloromethanes) produced in excess
of 500 million pounds and is distributed throughout all of the different
subgroups. Based on the DRI 1988 forecast and coverage, the real growth of
economic indicators for this group is presented in Table 5-24.
Overall, production volume is expected to increase by 31 percent, driven
primarily by the 40 percent increase in domestic consumption. The export
market, which constituted nearly ten percent of production in 1982, is
projected to decline to only three percent in 1988; net exports in absolute
physical terms are projected to decline by over 50 percent, from
4.6 to 2.2 billion pounds. Capacity utilization is projected to increase from
the low 1982 level of about 60 percent to a more attractive level of about
76 percent in 1988. Real prices are expected to increase by 22 percent;
together with the higher production growth, this leads to a nearly 60 percent
increase in the projected value of production by 1988.
-------
5-26
Table 5-24. Miscellaneous Cyclic and Acyclic Chemicals Baseline
Real Growth, 1982-1988
Economic Indicators
Production (millions Ibs.)
Domestic Consumption
Net Exports/Production (percent)*
Exports
Imports
Average Price (cents/lb.)
Value of Production (million $) 11,500
Capacity (announced expansions
mil Ibs.)
Capacity Utilization (percent)
1982
Value
47,600
43,000
9.6
5,400
800
24
11,500
75402
62
1988 Annual
Value Percent
62,200
60,000
3.5
4,000
1,800
29
18,200
79917
76
4.6
5.7
-1.0
-3.9
14.47
3.2
8.0
1.0
2.2
Total
Percent
31
40
-6
-27
128
22
59
6
14
Source: Data Resources, Inc., Chemical Service, DRI Chemical Model 1932
Benchmark Case, July 3, 1984 and DRI Chemical Model 1988 Forecast
Results, August 21, 1984.
* Net exports as a percent of production where net exports is equal to
exports less imports.
Table 5-25 presents chemicals in this group which are covered by the DRI
Chemical Service. The following brief discussions examine individual chemical
forecasts in order to identify those that are projected to perform
significantly poorer than average and the underlying reasons for the low
expected performance (see Table 5-26).
Acetaldehyde: The negative growth is due to its replacement as the
feedstock for acetic anhydride production by a new coal-based process.
Methanol: Methanol is projected to shift from a major exported chemical
to a major imported chemical. In 1982, net exports were 12 percent of
production; in 1988 net imports are expected to rise to ten percent of
production. Domestic consumption is relatively strong, projected to increase
by 32 percent between 1982 and 1988.
-------
5-27
Table 5-25. Price, Production, and Value of Production by Product
for Miscellaneous Cyclic and Acyclic Chemicals (SIC 2869-7)
1982 and 1988
nethanol
fornaldehyde
phosgene
ethanol
ethylene glycol
VCM *
acetaldehyde
ethylene oxide
acetic acid
Vtfl
isopropanol
propylene glycol
acetone
propylene oxide
allyl chloride
epichlorohydrin
acryl ic acid
butyl acrylate
ethyl acrylate
2-eh acrylate
methyl acrylate
CH3-nethacrylate
acrylonitrile
n-butanol ***
MEK
caprolactara
adipic acid
HMDA
naleic anhydride
Total
Price
(c/lb)
7.7
14
10.8
20.3
21.7
17.9
19
27.3
23.3
31.1
16.6
41
21.1
43.5
25.4
40.9
30.7
46.8
41.9
57.6
41.9
43.1
34
25.7
31.1
67.6
39.7
76.4
34.6
24
Prod.
(nln Ib)
7265
1736
973
2298
4295
6495
802
5000
2750
1876
1310
404
1757
1652
342
316
567
310
276
54
44
797
2040
706
462
797
1211
796
259
47590
Value
(nln $)
559
243
105
466
932
1163
152
1365
641
583
217
166
371
719
87
129
174
145
116
31
18
344
694
181
144
539
481
608
90
11463
==I
Price
c/lb)
10.9
17.7
11.2
24.7
27.2
20
22.4
33
19.7
31.7
24.1
38.3
32.6
36.6
39.1
60.2
35.7
56.7
50.7
71.9
48.9
61.1
43
34.5
39.9
80.9
46.7
70.4
42.1
= 1988 =
Prod.
(nln Ib)
7658
2893
1354
3998
4944
8775
705
5941
3373
2359
1537
585
2519
2312
486
449
809
512
406
94
71
1227
2400
. 1007
770
1248
1929
1392
426
.=
Value
(nln $)
835
512
152
988
1345
1755
158
1961
664
748
370
224
821
846
190
270
289
290
206
68
35
750
1032
347
307
1010
901
980
179
29 62179 18232
*** TOTAL 7. CrtWGE ***
Price Prod. Value
42
26
4
22
25
12
18
21
-15
2
45
-7
55
-16
54
47
16
21
21
25
17
42
26
34
28
20
18
-8
22
22
5
67
39
74
15
35
-12
19
23
26
17
45
43
40
42
42
43
65
47
74
61
54
18
43
67
57
59
75
64
31
49
111
44
112
44
51
4
44
4
28
70
35
122
18
119
109
66
100
78
117
88
118
49
91
114
87
87
61
100
59
* accounts for about 90'X of EDC production o-f 7600 million pounds in 1982.
** accounts for acetone cyanohydrin production of 856 million pounds in 1982.
*** accounts -for butyraldehyde production of 774 million pounds in 1982.
Source: Data Resources, Inc. Chemical Service, DRI Chemical Model 1982
Benchmark Case, July 3, 1984 and DRI Chemical Model 1988 Forecast Results,
August 21, 1984.
-------
5-28
Table 5-26. Low Growth Miscellaneous Cyclic and Acyclic Chemicals
Chemical
Real Growth 1982-1988 (percent)
Production Consumption
Acetaldehyde -12
Methanol 5
Ethylene Glycol 15
Isopropanol 17
Acrylonitrile 18
Ethylene Oxide 19
Acetic acid 23
Vinyl Acetate Monomer (VAM) 26
-12
32
22
11
26
19
26
56
Causes
Process change
International trade
Low demand;
International trade
Process change
International trade
Low demand
Process change;
International trade
International trade
Source: Data Resources, Inc., Chemical Service, DRI Chemical Model 1982
Benchmark Case, July 3, 1984 and DRI Chemical Model 1988 Forecast
Results, August 21, 1984.
-------
5-29
Ethylene Glycol: Domestic consumption between 1962 and 1988 is projected
to grow by only 22 percent. In addition, net exports which were 11 percent of
production in 1982, are expected to fall by nearly 40 percent by 1988.
Isopropanol: Domestic consumption is expected to grow by only 11 percent
between 1982 and 1988 due to the continuing trend toward acetone production
from cumene. Feedstock use for acetone has historically been the major end
use of isopropanol.
Acrylonitrile: The low production forecast is due to an unfavorable
international trade situation. In 1982, net exports were 39 percent of
production, and the level of exports is expected to increase very slowly
through 1988. Consequently, production is expected to grow by only 18 percent
whereas domestic consumption is expected to grow by 26 percent. Acrylonitrile
production growth is also limited indirectly by unfavorable trade conditions
for the major domestic use of acrylonitrile, acrylic fiber, exports of which
are a major end-use and are expected to fall by over 40 percent.
Ethylene Oxide: The low growth forecast is due to low domestic.demand for
its derivatives such as ethylene glycol.
Acetic Acid: The relatively weak growth of acetic acid is primarily due
to two factors: (1) a process change in the production of acetic anhydride;
and (2) a deteriorating international.trade situation. The trade issue is
mainly indirect, resulting from the trade problems affecting vinyl acetate
monomer (VAM, see below), which accounts for about 50 percent of acetic acid
demand; the direct trade effect is not large but is a drag on demand growth.
The other major issue is the new coal-based acetic anhydride (AAH) process
which reduces the AAH end-use share of acetic acid production from about
25 percent in 1982 to less than ten percent in 1988. Strong growth in other
end-uses is expected to counteract these negative effects.
Vinyl Acetate Monomer (VAM): The relatively low growth of VAM production
is due to the declining export market. In 1982, exports accounted for over 35
percent of VAM production and they are expected to decline by 25 percent
by 1988. A very strong market for vinyl acetate and alcohol plastics balances
this trade situation.
Table 5-27 presents the projected capacity utilization levels for
chemicals in this product group. Those chemicals with levels projected to be
less than 70 percent are listed in Table 5-28. Four of these eight chemicals
have been discussed earlier. For the others, except the acrylates and often
capacity is flexible: it can be used for the production of a number of related
chemicals. The acrylates are a good example of this situation; although each
acrylate shows low utilization levels, this is misleading because of an
unknown amount of capacity double-counting. This same situation exists for
n-butanol which is produced by the 0X0 process common to a large number of
alcohols.
-------
5-30
Table 5-27. Production, Capacity, and Capacity Utilization by Product
for Miscellaneous Cyclic and Acyclic Chemicals (SIC 2869-7)
1982 and 1988
raethanol
fornaldehyde
phosgene
ethanol
ethylene glycol
VCN
acetaldehyde
ethyltne oxide
acetic acid
WH
isopropanol
propylene glycol
acetone
propylene oxide
ally! chloride
epichlorohydrin
acrylic acid
butyl acrylate
ethyl acrylate
2-eh acrylate
raethyl acrylate
CH3-nethacrylate
acrylonitrile
n-butanol
HEK
caprolactan
adipic acid
Siitf
raaleic anhydride
Totals «
J " ','
Prod.
( nln
7265
1736
973
2298
4295
6495
802
5000
2750
1876
1310
404
1757
1652
342
316
567
• 310
276
54
44
797
2040
706
462
797
1211
796
259
: 1?82 =
Capac .
1b )
9978
3454
3328
7405
10080
1610
7600
4360
2435
2900
915
3585
2760
600
660
900
1000
1100
125
60
1220
2590
1495
678
1188
1745
1190
441
T.
c.u.
(X)
73
50
--
69
58
64
50
66
63
77
45
44
49
60
57
48
63
31
25
43
73
65
79
47
68
67
69
67
59
— —
Prod,
( nln
7658
2893
1354
3998
4944
8775
705
5941
3373
2359
1537
585
2519
2312
48V6
449
809
512
406
94
71
1227
2400
1007
770
1248
1929
1392
426
= 1988 =
Capac.
Ib )
12133
3454
1909
3728
7805
10080
1610
8000
4360
2435
2900
965
3585
2860
600
660
670
1350
1200
195
100
1310
2590
1695
938
1188
1745
1190
571
•••- «* TOTAL '/. CWN6E «*
C.U.
tt)
63
84
71
107
63
8?
44
74
77
97
53
61
70
81
81
68
121
38
34
48
71
94
93
59
82
105
111
117
75
Prod.
5
67
39
74
15
35
-12
19
23
26
17
45
43
40
42
42
43
65
47
74
61
54
18
43
67
57
59
75
64
Capac .
22
0
12
5
0
0
5
' 0
0
0
5
0
4
0
0
-26
35
9
56
67
7
0
13
38
0
0
0
29
C.U.
-10
33
38
5
23
-6
8
14
20
8
16
23
21
24
20
58
7
9
5
-2
28
14
12
14
38
41
50
16
46617 75402
62
60825 79917
30
H
* excludes phosgene.
Source: Data Resources, Inc. Chenical Service, DRI Chemical Model 1982
Benchmark Case, July 3, 1984 and DRI Chemical Model 1988 Forecast Results,
August 21, 1984.
-------
5-31
Table 5-28. Low Capacity Utilization Miscellaneous Cyclic
and Acyclic Chemicals
Capacity Utilization (percent) jj
Chemical 1982 1988 Trend
Acetaldehyd
Isopropanol
Propylen
Methanol
N-butanol
Source:
iyde
LOl
i Glycol
Glycol
ihydrin
ylate
•ylate
late
Data Resources,
Benchmark Case,
Results, August
50
45
44
73
58
48
31
25
43
47
44
53
61
63
63
68
38
34
48
59
decreasing
increasing
increasing
decreasing
increasing
increasing
increasing
increasing
increasing
increasing
Inc., Chemical Service, DRI Chemical Model 1982
July 3, 1984 and
21, 1984.
DRI
Chemical Model 1988 Forecast
-------
5-32
Table 5-29 presents the international trade outlook for the major
chemicals in this group. Exports were a major end market for ten chemicals
in 1982; this situation is projected to change significantly by 1988.
5.3.11 Cyclic Intermediates (SIC 2865-1)
This product group consists primarily of feedstocks for plastics and
fibers and was the third largest product group in the industry in terms of
production in 1982. DRI Chemical Service coverage of this group is very high,
about 85 percent of production in 1982. The DRI forecasts for this group a
50 percent increase in production between 1982 and 1988. Domestic consumption
is expected to grow by 60 percent; net exports, which were nine percent of
production in 1982 are projected to fall by about 40 percent. Between 1982
and 1988, real prices are expected to increase by about 40 percent and the
value of production by about 110 percent. Capacity utilization is expected to
improve significantly to about 85 percent by 1988. Table 5-30 summarizes
these forecasts.
Table 5-31 presents all of the major chemicals* in this product group and
covers over 85 percent of 1982 production. As with most of the OCPSF product
groups, this group is projected to grow substantially between 1982 and 1988.
The chemicals in this group which are not projected to perform well are listed
in Table 5-32. The production decline for crude terephthalic acid (TPA) is
not included in Table 5-32 because it reflects a small process change which is-
not significant compared to the overall issue of TPA/diemthy terephthalate
(DMT) precursor production for polyester polymer.
The low or negative production growth forecasts for the major
diisocyanates - toluene (TPI) and methylene (MDI) - are due to the low demand
for polyurethane foam as discussed above for plastics and resins (Section
n-butanol, the increase in capacity utilization levels between 1982 and 1988
is very significant. However, these figures must be used carefully because
5.3.1). The negative growth of MDI is due to its use in rigid foam for which
demand is projected to decline significantly by 1988; this effect is mitigated
by the demand growth for MDI's second major end use, non-foam polyurethane
polymer. For MDI, the international trade situation parallels the domestic
markets. The slow growth of TDI consumption is due to the slow projected
growth of flexible polymethane foam, its major end use; this, combined with a
projected 40 percent decline in exports, leads to the overall negative growth
in production. The poor performance of TDI is responsible for parallel poor
* All chemicals with 1982 production above 500 million pounds. The only
other large volume chemicals not included in the table are alkylbenzenes,
chlorobenzene, nonylphenol and tetrahydrofuran.
-------
5-33
Table 5-29. international Trade Situation by Product for
Miscellaneous Cyclic and Acyclic Chemicals (SIC 2869-7)
1982 and 1988
nethanol
•fornaldehyde
phosgene
ethanol
ethylene glycol
VCM
acetaldehyde
ethylene oxide
acetic acid
W
isopropanol
propylene glycol
acetone
propylene oxide
allyl chloride
epichlorohydrin
acryl ic acid
butyl acrylate
ethyl acrylate
2-eh acrylate
nethyl acrylate
CHS-nethacrylate
acrylonitrile
n-butanol
MEK
caprolactan
adipic acid
(MM
raaleic anhydride
Totals
Export
1190
4
0
52
519
922
0
3
126
698
141
45
115
144
0
27
12
71
76
20
8
86
803
163
70
62
32
11
6
5408
= 19£
Inport
1*1 n 1 k^
Hln ID;
299
7
0
147
37
51
0
10
25
7
77
9
3
51
0
2
0
0
2
0
10
0
1
4
41
0
3
0
1
787
12 =
Prod
7265
1736
973
2298
4295
6495
802
5000
2750
1876
1310
404
1757
1652
342
316
567
310
276
54
44
797
2040
706
462
797
1211
796
259
47590
Net Expt
as 7, o*
n_ .. j «
rPOOi*
12
0
0
-4
11
13
0
0
4
37
5
9
6
6
0
8
2
23
27
37
-5
11
39
23
6
8
2
1
2
10
5
Export
328
5
0
60
453
667
. 0
5
171
525
150
45
105
165
0
40
20
60
60
10
8
90
842
38
50
30
38
1
3
== 198
Import
i»l n 1 M
rain lui
1070
7
0
50
152
125
0
46
145
10
0
70
0
30
0
2
0
0
10
0
10
0
1
18
20
0
18
0
12
8 =
Prod
7658
2893
1354
3998
4944
8775
705
5941
3373
2359
1537
585
2519
2312
486
449
809
512
406
94
71
1227
2400
1007
770
1248
1929
1392
426
—
Net Expt
as 7. oi
Dfscici X
rPOO,*
-10
0
0
0
6
6
0
-1
1
22
10
-4
4
6
0
8
2
12
12
11
-3
7
35
2
4
2
1
0
-2
«* Total Percent
Export
Import
Change *
Net
Prod V.
l*i*
Exp
of
Prod**
-72
25
15
-13
-28
67
36
-25
6
0
-9
13
48
67
-15
-21
-50
0
5
5
-77
-29
-52
19
-91
-50
-27
258
0
-66
311
145
360
480
43
-100
678
-100
-41
0
400
0
0
350
-51
500
1100
128
5
67
39
74
15
35
-12
19
23
26
17
45
43
40
42
42
43
65
47
74
61
54
18
43
67
57
59
75
64
31
-22
0
0
4
-5
-7
0
-1
-3
-15
5
-13
-2
0
0
1
0
-11
-14
-26
2
-3
-4
-21
-2
-5
-1
-1
-4
-6
3969 1796 62179
* Exports less imports as a percent o-f production.
** 1988 level minus 1982 level.
Source: Data Resources, Inc. Chemical Service, DRI Chemical Model 1982
Benchmark Case, July 3, 1984 and DRI Chemical Model 1988 Forecast Results,
August 21, 1984.
-------
5-35
Table 5-31. Price, Production and ^falue of Production by Product for
Cyclic Intermediates (SIC 2865-1)
1982 and 1988
cyclohexane
cunene
phenol
bis-phenol A
nononitrobenzene
anil ine
MDJ
dinitrotoluene
toluene diaraine
TDI
ethylbenzene
styrene
p-xylene
TPA
TPA, crude.
DMT
o-xylene
phthal ic anhydr.
Price
(c/lb)
22
21.1
27.3
47.2
19
29.2
59.7
19.5
44.9
61.2
21.4
28.3
22.2
31.3
21.1
29.1
19.4
32.8
Prod.
(nln Ib)
1272
2678
2136
468
728
557
321
721
435
572
6674
5928
2926
2250
431
2222
799
691
Value
(nln $)
280
565
583
221
138
163
192
141
195
350
1428
1678
650
704
91
647
155
227
Price
(c/lb)
30
30.9
35.3
58
26.9
44.9
74.8
23.5
56.1
73
31.1
42.1
3?
38.6
32.6
37.2
31.8
43
— 1X88 -
Prod.
(nln Ib)
2323
4647
3642
852
1042
836
291
672
406
533
10204
8829
4535
3169
392
3375
971
1202
i
Valui
(nln 1
697
1436
1286
494
280
375
218
158
228
389
3173
3717
1678
1223
128
1256
309
517
*« TOTAL X CKWGE ***
Price Prod. Value
TOTALS
26 31809 8407
37 47921 17561
46
29
23
42
54
25
21
25
19
45
49
67
23
55
28
64
31
39
83
74
71
82
43
50
-9
-7
-7
-7
53
49
55*
41
-9
52
22
74
51
149
154
120
124
103
131
14
12
17
11
122
122
158
74
41
94
99
128
109
Source: Data Resources, Inc. Chemical Service, DRI Chemical Model 1982
Benchmark Case, July 3, 1984 and DRI Chemical Model 1988 Ebrecast Results,
August 21, 1984.
*This production change figure does not include an unusually large inventory
change (375 million pounds) in 1982, which, when added to production for that
year, produces a more representative production growth rate for the period of
23 percent.
-------
5-36
Table 5-32. Low Growth cyclic Intermediates
Real Growth 1982-1988 (percent)
Chemical Production Consumption Causes
Methylene Diisocyanate - 9 - 6 Low demand;
International trade
Toluene Diisocyanate - 7 8 Low demand;
International trade
Toluene Diamine - 7 - 7 Low demand;
International trade
Dinitrotoluene - 7 - 7 Low demand;
International trade
0-xylene 22 112 International trade
Source: Data Resources, Inc., Chemical Service, DRI Chemical Model 1982
Benchmark Case, July 3, 1984 and DRI Chemical Model 1988 Forecast
Results, August 21, 1984.
performance by its two precursors - toluene diamine and its precursor,
dinitrotoluene. The upstream effects of MDI are not significant because its
precursor, aniline, has other major end-uses, namely rubber processing
chemical and dye ingredients, which are both growing well (see Section 5.2).
The relatively low growth of o-xylene production is entirely due to the
decline in exports. Domestic consumption is projected to grow very strongly
because of the strong growth of phthalic anhydride and because the o-xylene
synthetis process is capturing an increasing share of phthalic anhydride
production.
Table 5-33 presents the projected capacity utilization levels for this
group. The chemicals listed in Table 5-34 have 1988 projected capacity
utilization levels below 70 percent. It is interesting to note that, despite
the decline in production of TDI and its precursors, capacity utilization is
projected to be 71 percent.
Table 5-35 presents the projected international trade situation for these
chemicals. Three of the five chemicals with, significant export markets
in 1982 have been discussed above because of their low production forecasts.
The remaining two chemicals are p-xylene and styrene. Styrene exports, unlike
nearly all other chemicals, increase between 1982 and 1988, but at a slower
rate than domestic consumption. On the other hand, p-xylene exports decline
significantly between 1982 and 1988 and lower production growth significantly,
despite a strong domestic market.
-------
5-37
Table 5-33. Production, Capacity and Capacity Utilization by Product for
Cyclic intermediates (SIC 2865-1)
1982 and 1988
cyclohexane
cunene
phenol
bis-phenol A
mononitrofaenzene
anil ine
MDI
dinitrotoluene
toluene dianine
TDI
ethyl benzene
styrene
p-xylene
TPA
TPA, crude
om
o-xylene
phthal ic anhydr.
^~
Prod.
( nln
1272
2678
2136
468
728
557
321
721
435
572
6674
5928
2926
2250
431
2222
799
691
: IWi —
Capac.
Ib )
3365
5645
4183
855
1560
1394
835
750
10805
8870
5260
3000
3800
1355
1540
C.U.
C/.)
38
47
51
55
47
40
38
~
—
76
62
67
56
75
—
58
59
45
Prod.
( nln
2323
4647
3642
852
1042
836
291
672
406
533
10204
8829
4535
3169
392
3375
971
1202
• 17BB =
Capac.
Ib )
3695
5305
4183
995
1560
1394
1235
750
10010
9070
6215
3000
3800
1355
1750
*** IUIHL /. UWNOl ***
C.U.
63
88
87
86
67
60
24
—
—
71
102
97
73
106
—
89
72
69
Prod.
83
74
71
82
43
50
-9
-7
-7
-7
53
49
55
4J
-9
52
22
74
Capac.
10
-6
0
16
0
0
48
0
-7
2
18
0
0
0
14
C.U.
25
40
36
31
20
20
-15
-5
40
31
17
31
30
13
24
TOTALS »
30222 53217
57
46451 54317
86
54
29
* Does not include chemicals with missing data.
Source: Data Resources, me. Chemical Service, DRI Chemical Model 1982
Benchmark Case, July 3, 1984 and DRI Chemical Model 1988 Forecast Results,
August 21, 1984.
-------
5-38
Table 5-34. Low Capacity Utilization Cyclic Intermediates
Chemical
Capacity Utilization
(percent)
1982 1988
Trend
MDI
Aniline and Mononitrobenzene
Cyclohexane
Phthalic Anhydride
38
40
38
45
24
60
63
69
decreasing
increasing
increasing
increasing
Source: Data Resources, Inc., Chemical Service, DRI Chemical Model 1982
Benchmark Case, July 3, 1984 and DRI Chemical Model 1988 Forecast
Results, August 21, 1984.
5.4 Summary of Low Growth Products
The chemicals shown in Table 5-36 have been identified as having low
projected production growth for the period from 1982 to 1988. In addition to
these chemicals, those with low projected capacity utilization levels (and
their SIC groups) are listed below:
Aniline/Mononitrobenzene (2865-1);
Cyclohexane (2865-1);
Epichlorohydrin (2869-7);
Phthalic Anhydride (2865-1); and
Propylene Glycol (2869-7).
Lastly, the following chemicals and their SIC groups, whose declining
international markets have limited production growth, though not as severely
as those listed in Table 5-36, are:
High Density Polyethylene (2821);
and P-xylene (2865-1).
5.5 Firm Baseline
The firm baseline establishes the values used for the firm impact
analyses. These analyses, as described in Section 3.6 above, consist of the
following measures and variables:
Impact Analysis
1. Investment
2. Financial Ratios
a) Debt to Total Assets
b) Beaver's
c) Return on Net Worth
Firm Variables Needed
Annual investment, Treatment capital costs
Total debt; Total assets
Cash flow; Total debt
Net income; Tangible net worth
-------
5-39
Table 5-35. International Trade Situation by Product for
Cyclic Intermediates (SIC 2865-1)
1982 and 1988
cyclohexane
cuntene
phenol
bis-phenol A
•inonitrobenzene
anil ine
MDI
dinitrotoluene
toluene dianine
7DI
ethylbenzene
styrene
p-xylene ***
TPA
TPA, crude
DMT
o-xylene
phthalic anhydr.
TOTALS
—
Export
140
21
110
0
0
0
85
0
0
170
114
1025
872
150
0
98
389
11
3185
= 191
Import
r»l n 1 k^
din lot
31
192
0
0
0
0
0
0
0
0
0
21
77
0
0
0
0
2
323
32==
Prod
1272
2478
2136
468
728
557
321
721
435
572
6674
5928
3683
2250
431
2222
799
691
32566
Net Expt
as V. of
n_ _ j »
Prodi*
9
-6
5
: • 0
: o
0
26
0
0
30
2
17
22
7
0
4
49
1
9
Export
136
5
95
38
0
0
70
0
100
50
1193
400
65
0
150
200
20
= iyi
Inport
iml n 1 K\
ii in ID/
30
371
45
0
0
0
0
0
0
0
40
100
100
0
0
0
100
4
J8
Prod
2323
4647
3642
852
1042
836
291
672
406
533
10204
8829
4635
3169
392
3375
971
1202
Net Expt
as '/. of
n _ j «
rroo.*
5
-8
1
4
0
0
24
0
0
19
0
12
6
2
0
4
10
1
2522
790 48021
* Exports less inports as a percent of production.
« 1988 level minus 1982 level.
*** Production includes inventory use of 757 million pounds in 1982.
*** Total Percent
Export
Import
Change •
Net
Prod 7.
(***
Exp
of
Prod**
-3
-76
-14
-18
-41
-56
16
-54
-57
53
-49
82
-3
93
376
30
100
83
74
71
82
43
50
-9
-7
-7
-7
53
49
26
41
-9
52
22
74
-4
-1
-4
4
0
0
-2
0
0
-11
-2
-5
-15
-5
0
0
-38
0
-21
145
-5
Source: Data Resources, Bic. Chemical Service, DRI Chemical Model 1982
Benchmark Case, July 3, 1984 and DRI Chemical Model 1988 Forecast Results,
August 21, 1984.
-------
5-40
Table 5-36. Summary of Low Baseline Growth Chemicals*
Real Growth 1982 to 1988 (percent)
Chemical
Acetaldehyde
Acetic acid
Polyurethane, Rigid Foam 2821
MDI
Polyurethane, Flexible
Foam
TDI
TDA
DNT
Acrylic Fiber
Acrylonitrile
SIC Group
2869-7
2869-7
2821
2865-1
2821
2865-1
2865-1
2865-1
2824
2869-7
Production
-12
23
-30
- 9
3
- 7
- 7
- 7
5
18
Consumption
-12
26
-30
- 6
3
8
- 7
- 7
22
26
Causes
Process change
Process change
Low demand
Low demand;
International
Low demand
Low demand;
• International
Low demand;
International
Low demand;
International
Low demand;
International
trade
trade
trade
trade
trade
International trade
Methanol
2869-7
32
International trade
Ethylene Glycol
Ethylene Oxide
2869-7
2869-7
15
19
22 Low demand;
International trade
19 Low demand
Isopropanol
0-xylene
2869-7
2865-1
17
22
11 Process change
112 International trade
Source: Data Resources, Inc., Chemical Service, DRI Chemical Model 1982
Benchmark Case, July 3, 1984 and DRI Chemical Model 1988 Forecast
Results, August 21, 1984.
* Chemicals are grouped according to those with related precursors,
derivatives, or end-uses.
-------
5-41
In the firm level analyses, the values used for the financial ratios are
from 1982 and earlier years. For private companies, financial data are
unavailable and the financial analyses cannot be performed. Section 2.7
presents the financial analysis and the financial ratios which could be
calculated given available data. There is no attempt to forecast these
variables as is done in the plant analyses; therefore, the baseline values are
the same as those presented in Section 2, and are not repeated here.
5.6 Plant Baseline
The plant baseline consists of the 1988 forecast values for the variables
used in the impact analyses. There are four plant impact analyses, and the
variables involved (other than treatment costs)- are:
Impact Analysis Plant Variables Needed
1. Profitability Profits before taxes
2. Liquidity Cash flow
3. Production Costs Production costs
4. Closure Cash flow
Salvage value
Employment
The methodology for estimating the 1988 values of these plant variables
is presented in detail in Sections 3.3 and 3.4. Based on the methodology,
the variables for impact analysis #1 is based on the forecast 1988 plant
sales value and selected ratios for each SIC group between sales and the
variable. For impact analyses 12 and $4, the basic plant variables are
sales value and employment. The cash flow variables (net income, interest,
depreciation) and the salvage value variables (current and fixed assets) are
the product of sales value and selected ratios by SIC group.
The ratios used are based on data from Robert Morris Associates (RMA);
they are discussed in Section 3.3.1.4. Table 5-37 presents the RMA ratios
used. The variables net income and interest expense have not been included
in Table 5-37 because they are not taken directly from RMA data. Net income
is estimated for each plant using the RMA profit-before-taxes-to-sales ratio
as follows:
net income = profit before taxes/sales x (1 - .45) x plant sales (1)
where,
.45 = corporate marginal income tax rate.
Interest expense is estimated for each plant as:
interest expense = [(profit before taxes/sales)/ (2)
((earnings before interest and taxes/interest) - 1)
x plant sales
using two RMA ratios.
-------
5-42
Table 5-37. Financial Ratios Used in
Plant Baseline Estimation
Ratio*
Profit before taxes/Sales(%)
Sales/Total Assets
Current Liabilities/
Total AssetsC %)
Inventory/Total Assets(%)
Current Assets/Total Assets(%)
Fixed Assets/Total Assets(%)
Earnings Before interest
and Taxes/Interest
Depreciation, Depletion
Amortization/Sales( %)
SIC's 2821, 2823, 2824
All Small
Plants Plants**
3.6
2.1
40.6
22.3
59.6
32.6
3.7
2.3
3.1
2.4
45.9
23.1
65.4
27.8
3.5
1.9
SIC's 2865
All
Plants
5.1 '
2.1
37.8
24.2
61.7
31.1
and 2869
Small
Plants**
3.5
2.6
44.2
28.3
68.2
25.4
4.6
1.9
4.5
1.5
Source: Robert Morris Associates, Annual Statement Studies for 1976-1982.
* Net income and interest expense baseline values are not drawn directly from
RMA data but are estimated based on the above ratios.
** Small plants have assets of less than $1 million.
-------
5-43
Plant baseline estimates of production costs and employment, taken from
§308 Survey data, are the same as those presented in the Industry Profile,
Section 2.8, and are not repeated here.
Table 5-38 presents the distribution of estimated 1988 plant sales values
by size and by SIC group. The 1988 median value is 16 million dollars which
is about 14 percent higher than the 1982 median. Individual 1988 plant sales
estimates are between 7 and 19 percent higher than their 1982 values.
Plant OCPSF employment in 1988 is estimated to be equal to its 1982 levels
as listed in the §308 Survey. The distribution of this variable for 1982 is
presented in Table 5-39. This analysis does not indicate any baseline plant
closures because the 1988 plant forecasts are based on average 1976 through
1982 financial conditions.
5.7 Foreign Trade Baseline
Because of significant changes, taking place in the area of foreign trade
and the importance of this market to the OCPSF industry, this subsection
presents the 1988 forecast baseline conditions for foreign trade.
The purposes of this subsection are: (1) to describe the general trade
situation in the 1988 baseline; and (2) identify products which in the
baseline suffer low production growth due to trade issues. The list of these
products is used in the closure analysis to see if closure candidates produce
these products. If so, then foreign trade will deteriorate further.
The primary factors influencing foreign trade concern U.S. feedstock
prices and availability, capacity expansion in Europe and Third World
countries, and U.S. and international demands for OCPSF products. In the
product baseline, the forecasts are based on work by the DRI Chemical Service
and incorporate the Service's judgments as to these factors. From these, the
product level international trade forecasts are made, and the products
particularly sensitive to the deteriorating foreign trade situation are
identified.
5.7.1 General International Trade Factor Forecasts
The DRI industry forecast between 1982 and 1988 includes deregulation of
natural gas prices and good feedstock availability (see Section 5.2). Real
prices are projected to increase by 31 percent for natural gas and 9 percent
for petroleum products between 1982 and 1988 (see Section 5.1.3., Table 5-3).
The DRI trade forecasts take into account the various capacity expansions
planned in such areas as Europe, Canada, and the Middle East. Table 5-40
presents international trade forecasts for selected products. The outlook
indicates export growth in the Middle East and Canada and stagnation or
decline of growth in U.S. exports. In the period to 1990, the major factor
affecting international trade will be the start-up of several Saudi Arabian
complexes. The effects of these complexes will mainly be felt in the methanol
and the various ethylene derivatives markets. 3y 1990, Saudi Arabian capacity
for ethylene and methanol is expected to be about 3.5 billion pounds annually
each. In addition, significant capacity in L.DPE, ethylene glycol, and styrene
is also expected to be in place.
-------
5-45
in
o
1
K
U
O
in
u.
in
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C.
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t-t
UJ
V)
«^
CQ
L.
O
^
o
hH
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CD
i
in
M
0
.,
o
Kl
1
in
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5-46
Table 5-40. Petrochemical Exports and Imports for Selected Products
for 1981, 1985 and 1990
Net exports*
Thousand metric tons/year
1981
1985
1990
Low-density Polyethylene/Linear Low-density Polyethlyene
Western Europe 323
U.S. 424 180
Canada 84 270
Japan 135 30
Middle East , (81) , 110
(100)
15
455
(180)
641
High Density Polyethylene
Western
U.S.
Canada
Japan
Middle
Europe
East
250
i '350
: 36
131
1 (8?) 1
170
135
75
45
10 i
165
180
70
(120)
125
Ethylene Glycol
Western Europe
U.S.
Canada
Japan
Middle East
100
75
94
(30)
1 (35) i
30
83
195
(80)
(12) i
(120)
(50)
220
(280)
360
Styrene
Western Europe
U.S.
Canada
Japan
Middle East
(100)
508
157
(161)
(5)
(100)
500
200
(250)
(12)
(100)
295
210
(390)
450
Methanol
Western Europe
U.S.
Canada
Japan
Middle East
(580)
300
200
(326)
345**
(1,740)
155
1,370
(1,030)
1,200**
(3,105)
(1,400)
1,440
(1,970)
2,065**
Source: U.S. Office of Technology Assessment (as reported in Chemical Week, 21
November 1984) .
* Net exports equal exports minus imports. When imports are greater than
exports the net value is reported in parentheses.
** Includes Africa
-------
5-47
5.7.2 Product Foreign Trade Forecasts
This discussion examines in further detail the product level foreign trade
forecasts (Sec. 5.3, Tables 5-12, 5-29, and 5-35). The product trade
forecasts are limited to the coverage of the DRI Chemical Service, which
covers about 70 percent of OCPSF production and includes nearly all large
volume intermediate and finished products, as well as a few small volume
products.
The identification of foreign trade sensitive products must involve
examination of a number of issues: level of export and import activity,
price/cost differences between the U.S. and other markets, transportation
costs, tariffs, and national government regulatory and industrial development
policy.* For this analysis, only a limited focus is selected. Susceptibility
of products to international trade issues is based on the level of product
exports and imports. Significant international trade sensitive products are
identified by three criteria:
(1) 1988 forecast levels of either exports or imports are more
than ten percent of forecast production levels;
(2) the sum of the export and import percentages is greater than
15 percent; and
(3) the level of net exports (exports less imports) as a percent
of production declines by over ten percentage points between
1982 and 1988. |
i
Table 5-41 presents the foreign trade data by products for 1982 and 1988 |
for plastics and resins (SIC 2821) and synthetic fibers (SIC 2824). Overall f
for SIC 2821, exports are forecast to decline by 41 percent between 1982 and
1988 and, as a percentage of production, fall from 12 to five percent.
Meanwhile imports are forecast to grow by 268 percent between 1982 and 1988,
but will only be equal to about two percent of 1988 production.
For SIC 2824, exports similarly decline by 24 percent between 1982 and
1988, and fall to about five percent of 1988 production. Imports increase by
278 percent to nearly three percent of 1988 production.
By the three criteria, the following products have a significant
international trade market: polyvinyl alcohol; SAN; polypropylene;
polycarbonate; nylon 6 resin; nylon 66 resin; acrylic fiber; HOPE; LDPE; and
PVC.
Of these products, all except acrylic fiber are projected to have strong
domestic consumption growth of at least 50 percent between 1982 and 1988.
* This last issue includes such issues as national effluent standards, ,•
degree of government subsidies of pollution control, and industry ]
protectionism. I
-------
5-41. U.S. FDreign ttade by Chemical Product for
Plastics and Resins (SIC 2821) and Synthetic Fibers (Sic 2824)
1982 and 1988
(a)
(b)
(c)
Percent of
Exports Imports Production
-( mln Ib )- Exports Imports
PLASTICS/RESINS
HDPE
LDPE
PVC
PVA latex
PW bead
PV Alcohol
Polystyrene
SAN
ABS
Polypropylene
Polyester, unsat
Po!yurethane,pl«
1 ,flex, foara
' , rigid foara
Polycarbonate
Epoxy Resin
EVA Polymer
U+M Formhyd. Res
Phenol ic Resin
Nylon 6 Resin
Nylon 66 Resin
Polyester, sat.
Subtotal
FIBERS
Nylon Fiber
Acryl ic Fiber
Polyester Fiber
1224
951
561
2
4
23
95
10
59
809
8
0
0
0
50
39
0
20
19
- 13
20
90
3997
119
174
277
36
26
116
4
7
22
0
0
13
6
2
0
0
0
1
5
0
8
18
1
4
3
272
29
13
13
16
19
11
1
3
21
3
n
8
23
1
0
0
0
28
14
0
2
2
19
13
9
12
6
28
9
0
1
2
1
5
20
0
0
2
0
0
0
0
0
1
2
0
1
1
1
3
0
1
2
2
0
(*)
(i )
-------
5-49
Domestic consumption between 1982 and 1988 is projected to at least double for
polyvinyl alcohol, polycarbonate and the nylon resins. As Table 5-12 shows,
acrylic fiber is the only final product with significant trade markets where
forecasted production between 1982 and 1988 does not increase by at least 25
percent. As mentioned above in Section 5.3.2, the low growth forecast for
acrylic fiber is not primarily due to its poor international trade outlook.
Table 5-42 presents foreign trade data for the major products of
SIC 2969. Between 1982 and 1988, exports for these products are forecast to
decrease by 27 percent and imports increase by 128 percent. As a percent of
production, exports fall from eleven to six percent whereas imports rise from
two to three percent. The products within this group with significant
internatinal trade markets in the 1988 forecast are: acrylonitrile; vinly
acetate monomer; propylene glycol; methanol, acrylates; isopropanol; and
ethylene glycol. In addition, one product -- n-butanol — is forecast to have
a significantly declining international trade situation between 1982 and 1988;
however, domestic consumption is expected to grow by 80 percent during this
period.
Of these products, four are forecast to have significantly lower than
average growth between 1982 and 1988: acrylonitrile; methanol; isopropanol;
and ethylene glycol. As discussed in Section 5.3.10, the low prospects for
acrylonitrile and methanol are primarily due to the poor international trade
outlook.
Table 5-43 presents foreign trade data for the major products of SIC
2865. As with other major product groups, overall exports are decreasing and
imports increasing. The following products are forecasted to have significant
trade markets in 1988,: o-xylene; MDI, TDI, styrene; and p-xylene.
The xylenes are projected to show less than average production growth
between 1982 and 1988, 23 percent for p-xylene* and 22 percent for O-xylene.
This low growth is largely due to the decrease in their exports. The
declining international trade situation for MDI and TDI is secondary to the
effects of the low growth prospects for their major end use, polyurethane.
Styrene exports are not forecast to decline though there will probably be very
little growth; nevertheless, production between 1982 and 1988 is expected to
grow by 49 percent due to increased domestic consumption.
5.7.3 Summary of Foreign Trade Sensitive Products
This subsection identifies products with significant foreign trade
involvement which, while not leading to low production growth, may indicate
potential foreign trade impacts from pollution control costs. Products which
* This growth projection includes an unusually large inventory change
(375 million pounds) in 1982 which is added to production for that year to
obtain a more representative growth rate for the 1982 to 1988 period.
-------
5-50
1&ble 5-42. U.S. foreign Tirade Situation by Product for
Miscellaneous Cyclic and Acyclic Chemicals (SIC 2869-7)
1982 and 1988
(a) (b) (c) (d)
Percent o-f
Exports Imports Production
-< mln Ib )- Exports Imports
(e)
-------
5-51
Table 5-43. U.S. Foreign Ttra^e Situation by Product for
Cyclic Intermediates (SIC 2365-1}
1982 and 1988
(a)
(c)
(d)
1982
Percent oi
Exports Imports Production
-( nln Ib )- Exports Imports
cyclonexane
cumene
phenol
bis-phenol A
raononi trobenzene
anil ine
HD3
dini trotoluene
toluene diaraine
TDI
ethylbenzene
styrene
p-xylene
TPA
TPA, cr-ude
DMT
o-xylene
phthal ic anhydr,
140
21
110
0
0
0
85
0
0
170
114
1025
872
150
0
98
389
11
31
192
0
0
0
0
0
0
0
0
0
21
77
0
0
0
0
2
11
1
5
0
0
0
26
0
0
30
2
17
24
7
0
4
49
2
2
7
0
0
0
0
0
0
0
0
0
0
2
0
0
0
0
0
(e)
(i)
1988
Percent o^
Exports Imports Production
-< mln Ib )- Exports Imports
136
5
95
38
0
0
70
0
0
100
50
1193
400
65
0
150
200
20
30
371
45
0
0
0
0
0
0
0
40
100
100
0
0
0
100
4
6
0
3
4
0
0
24
0
0
19
0
14
9
2
0
4
21
2
1
8
1
0
0
0
0
0
0
0
0
1
2
0
0
0
10
0
(i) (j)
-------
5-52
have significant and usually decreasing foreign trade markets yet have strong
domestic consumption growth are:
SIC 2821 SIC 2865 SIC 2869
LDPE styrene vinyl acetate monomer
PVC propylene glycol
polypropylene acrylates
polyvinyl alcohol n-butanol
SAN
polycarbonate
nylon resins
The international trade issue is quite complicated and full of
uncertainty. In terms of uncertainty, for example, the on-line date of Saudi
Arabian petrochemical complexes has been continually delayed. A recent
Chemical Week editorial traced a series of articles starting over 12 years ago
discussing such production, and finally this production is appearing on the
market. As to the complexity of this issue, the following factors are
important to an in-depth assessment of foreign trade impacts, and could modify
the conclusions discussed in this foreign trade baseline. However, they are
beyond the scope of this analysis.
I. Relative pollution control costs
1. Differences in effluent standards
2. Differences in costs of meeting standards
a. Government subsidies
b. Technological differences
II. Downstream Trade Impacts
1. Indirect (or pass-through) pollution control cost
effects on derivatives' trade
2. Direct pollution control costs effects on derivatives'
trade
III. Tariff barriers
1. U.S. tariffs on organic chemicals
2. Foreign tariffs on organic chemicals
3. Plans to increase tariffs by cost of pollution control
IV. Transportation
1. Costs
2. Physical difficulties
NB: These may be high enough for small volume chemicals,
expecially toxic ones, to preclude overseas shipment.
V. Non-pollution international cost/price differences
1. Feedstock costs
2. Required return on investment
-------
5-53
5.8 Resource Conservation and Recovery Act (RCRA)
In addition to treatment costs incurred in compliance with the effluent
limitations analyzed in the following chapter, plants will be incurring
treatment costs resulting from the Resource Conservation and Recovery Act
(RCRA). It is estimated that each plant will incur a site inspection cost of
$3,000 per year. The annual treatment costs for the 933 plants incurring this
cost totals $2.8 million (1982 dollars). Since the RCRA requirements will be
met regardless of which regulatory options are chosen for BPT/BAT/PSES, the
analysis of RCRA impacts are reported here as part of the baseline.
The plant level impacts for the RCRA baseline, are summarized by
subcategory in Table 5-44. While all plants incur costs, the impacts vary by
subcategory. The Part A Organics and Thermosets subcategories have the
largest impacts. The Part A Organics plants are expected to incur a median
decrease in profitability of 0.6 percent. In addition, 4 of the 156 plants
analyzed are expected to close their plastics and organic chemicals production
while a fifth plant is expected to close entirely. These closures are
expected to result in the loss of seven jobs. In Thermosets, the median
decrease in profitability is expected to be 1.1 percent, and 2 of the 134
plants analyzed are expected to close their plastics and organic chemicals
production. These closures also are expected to result in the loss of seven
jobs.
A second group of subcategories will have lower impacts, but are expected
to incur some plant or product-line closures. This group includes Specialty
Organics, Thermoplastics, and Thermoplastics and Organics. The Specialty
Organics plants are expected to incur a median profit reduction of 0.4
percent; and one plant out of the 114 analyzed is expected to close down
entirely. However, this plant employs only one person. Thermoplastic plants
also are expected to incur a median profit reduction of 0.4 percent, and one
plant out of the 136 analyzed is expected to close its plastics and organic
chemicals production resulting in the loss of one job. While plants in the
Thermoplastic and Organics subcategory are expected to incur a median
profitability reduction of only 0.1 percent, one plant out of the 60 analyzed
is expected to close its plastics and organic chemicals production, resulting
in the loss of one job.
The remaining subcategories show lower impacts. The two miscellaneous
subcategories (Other and NEC) show median reductions in profits of 0.5 and 0.3
percent respectively. However, neither subcategory is expected to experience
any closures. The median reduction of profits for Bulk Chemicals,
Cellulosics, Commodity Chemicals, and Fibers are expected to range from 0.0 to
0.1 percent, and there are no closures expected.
Since the costs are so low, neither the firm level impact nor the foreign
trade analysis were conducted. The job losses are so small that there will be
no community impacts.
-------
5-54
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Section 6. Economic Impact Assessment Results
6.1 Introduction
6.2 Plant Level Impacts
6.2.1 Summary
6.2.2 BPT Impacts
6.2.3 BAT Impacts
6.2.4 PSES Impacts
6.3 Firm Level Impacts
6.3.1 Firm Level Investment Impacts
6.3.2 Firm Level Financial Ratio Analysis
6.4 Community Impacts
6.4.1 Summary
6.4.2 BPT Impacts
6.4.3 BAT Impacts
6.4.4 PSES Impacts
6.5 Balance of Trade Impacts
6.5.1 Summary
6.5.2 Losses to Production
6.5.3 Percentage Price Increases
6,6 Small Business Analysis
6.6.1 Introduction
6.6.2 Small Business Definition
6.6.3 Summary of Analysis
6.7
Appendix 6A
Appendix 6B
New Sources Impacts
6.7.1 Conventional Pollutant Controls
6.7.2 Priority Pollutant Controls
PSES Option II Impacts
Impact Results Incorporating All RCRA
Baseline Costs
-------
Section 6
Economic Impact Assessment Results
6.1 Introduction
This section summarizes the results of the economic impact analysis
associated with compliance with the effluent limitations described in
Section 4. The impacts are presented by regulation, for (1) the plant
level analysis, (2) the firm level analysis, (3) community impacts, (4)
balance of trade impacts, (5) small business analysis and (6) new source
impacts.
6.2 Plant Level Impacts
The plant level impacts consist of four measures: profitability impacts,
liquidity impacts, changes in production costs and the plant closure analysis. ;"j
The results of the plant level analysis, along with the employment impacts ?,
resulting from potential plant and production line closures, are presented |
below by effluent limitation regulation.
6.2.1 Summary
Compliance costs for BPT Option I are estimated for 304 plants. (Table
6-1). These costs are estimated to total $277.2 million in capital investment
and $77.8 million in operation and maintenance costs, resulting in a total 1
annualized cost of $131.0 million (1982 dollars). For the 280 plants analyzed, *'
the median decrease in profitability is expected to be 7.5 percent, and produc- -:
tion costs are expected to rise by 0.5 percent. The median plant liquidity ?
ratio decrease under this option is expected to be 4.8 percent. The plant |
closure analysis shows that four plants are expected to shut down completely "i.
and six plants are forecast to shut down their plastics and organic chemicals «
production lines. These combined plant and line closures would cause an
employment loss of 251 jobs.
The estimated costs and impacts for BPT Option II are almost identical
to those predicted for BPT Option I. Compliance with this option by 304
plants is expected to cost $294.2 million in capital investment, and $82.4
million in operation and maintenance, resulting in a total annualized cost
of $138.9 million (6 percent higher than BPT Option I). The median decrease
in profitability across all the 280 plants analyzed is expected to be 8.8
percent, and production costs will increase by 0.6 percent. The median
plant liquidity decrease is expected to be 5.8 percent. These measures
are only slightly higher than those reported for BPT Option I. Plant and
line closures and the resulting employment effects are identical to those
expected for BPT Option I — four plant closures, six product line closures,
and 251 job losses.
For the purposes of this analysis, the costs and impacts for BAT Option
I are assumed to be the same as for BPT Option II, both of which are based
on Biological Treatment With and Without Polishing Ponds. Some direct
dischargers do not need to install biological treatment in order to meet BPT
conventional pollutant limitations, but may need to install some combination
-------
6-2
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6-3
of in-process controls to meet priority pollutant limitations based on
biological treatment. The actual costs and impacts for BAT Option I are
expected to fall somewhere between those reported for BPT Option II and
BAT Option II. The Agency will incorporate the costs and impacts specific
to BAT Option I in the analysis for the final rule.
Compliance costs for BAT Option II* (expected to be incurred by 306
plants) are projected at $607.2 million in capital investment, and $298.1
million in operation and maintenance costs, resulting in a total annualized
cost of $414.7 million. Based on the 282 plants analyzed, the median
decrease in profitability is expected to be 17.4 percent. The median
production cost increase is 1.3 percent, while the median liquidity ratio
drops by 15.5 percent. A total of 11 plants are forecast to shut down,
and another 11 plants are forecast to shut down their plastics and organic
chemicals production lines. These combined plant and line closures would
result in an estimated loss of 3,966 jobs.
The impacts of BAT Option III are expected to be considerably more
severe than for BAT Option II. Compliance costs for BAT Option III are
expected to total 1,437.1 million in capital investment, $400.9 million in
operation and maintenance, resulting in a total annualized cost of $676.8
million, about a 60% increase from BAT Option II. The incremental median
profitability reduction is 33.9 percent for BAT Option III, compared to
17.4 percent for BAT Option II. The median increase in production costs
is expected to be 2.4 percent, compared to 1.3 percent for BAT Option II.
The liquidity ratio decrease is 26.6 percent, compared to 15.5 for BAT
Option II. Plant closures rise significantly under BAT Option III relative
to BAT Option II, from 11 to 20 plants of the 282 plants analyzed. Plants
expected to shut down their plastics and organic chemicals production
lines also rise from 11 to 19. Employment losses under BAT Option III'are
expected to total 9,906 jobs, more than double the 3,966 jobs lost under
BAT Option II.
Compliance costs for PSES Option II (which are expected to be incurred
by 404 plants) are projected to total $303.8 million in capital investment,
$107.7 million in operation and maintenance costs, resulting in total annualized
costs of $166.1 million. Based on the 355 plants analyzed, the median reduc-
tion in profitability is expected to be 32.5 percent. Median production cost
increases are expected to equal 2.4 percent. The median decline in the liquidity
ratio is estimated at 21.7 percent. Nineteen plants are expected to close, and
an additional 37 plants are expecteed to shut down their plastics and organic
chemicals production lines. These plant and line closures are projected to
cause employment losses of 1,595 jobs.
*Both BAT options are evaluated from BPT Option II.
-------
6-4
The impacts for PSES Option III are projected to be less severe than
those for PSES Option II. Compliance costs are expected to total $189.2
million in capital investment, and $99.0 million in operation and maintenance,
resulting in a total annualized cost of $135.3 million. Based on the 355
plants analyzed, the median decrease in profitability is expected to be
26.0 percent. Median production cost increases are expected to equal 1.8
percent. The median decrease in the liquidity ratio is estimated at 15
percent. Sixteen plants are expected to close, and an additional 28 plants
are expected to shut down the plastics and organic chemicals production
lines. These plant and line closures are estimated to cause employment
losses of 1,073 jobs.
6.2.2 BPT Impacts
The plant level impacts for BPT Option I are summarized by subcategory
in Table 6-2. The impacts of BPT Option I vary significantly by subcategory.
The Organics (Part A), Specialty Organics, and Thermosets subcategories show
the largest impacts. The Organics (Part A) plants are expected to incur a
20.3 percent median profitability decrease, and three of the 25 plants
analyzed are projected to close their plastics and organic chemicals production
lines. In the Specialty Organics subcategory, the expected median profitability
decrease is 22.3 percent. Two of 30 plants in this subcategory are expected
to shut down completely. The Thermosets subcategory is expected to incur a
median profitability reduction of 19.0 percent. ' Of the 22 plants analyzed,
one plant is expected to shut down completely, and two plants are expected
to shut down their plastics and organic chemicals production lines.
The remaining subcategories show less adverse impacts from compliance with
BPT Option I. The Thermoplastics subcategory is expected to have one plant
closure out of the 48 plants analyzed. The Commodity Organics subcategory
is expected to have one plant close its organics production lines out of the
24 plants analyzed. The Bulk Organics, Rayon, Other Fibers, Others and
Thermoplastics and Organics subcategories are expected to incur smaller
profitability reductions, and no plant or product line shutdowns are expected
in these subcategories.
Only two subcategories are expected to incur different costs under BPT
Option II than under BPT Option I (See Table 6-3). Under BPT Option II, the
Thermoplastics subcategory is expected to incur higher costs and impacts,
while the Thermosets subcategory is expected to incur lower costs and
impacts.
For the Thermoplastics subcategory, the capital investment costs
under BPT Option II are expected to increase from $15.9 to $38.3 million,
and operation and maintenance costs increase from $5.7 to $11.2 million.
The total annualized costs increase from $8.7 to $18.5 million. The median
profitability reduction rises from 5.2 percent to 14.8 percent for BPT
Option II, and the median production cost increase rises from 0.3 percent
to 0.9 percent. The single plant closure at BPT Option I remains a closure
at BPT Option II.
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6-7
For the Therraosets subcategory, the capital investment costs under
BPT Option II are expected to drop from $19.8 million (under BPT Option I)
to $14.3 million, operation and maintenance costs drop from $4.4 to $3.5
million, and total annualized costs drop from $8.2 to $6.3 million. The
median profitability reduction drops from 19.0 percent to 18.1 percent,
while the increase in median production costs declines from 1.8 percent to
1.4 percent. The plant shutdowns are the same under both BPT Options with
one plant expected to close and two plants expected to close their plastics
and organic chemicals production lines.
6.2.3 BAT Impacts
The subcategories most affected by BAT Option II are the Bulk Organics,
Other Fibers, Organics (Part A), Specialty Organics, and Thermosets. (See
Table 6-4). The Bulk Organics subcategory is expected to incur a median
profitability decrease of 24.9 percent. Of the 53 plants analyzed, four
plants are projected to close and three plants are expected to close their
plastics and organic chemicals production lines. For the Other Fibers
subcategory, the median expected profitability reduction is 10.5 percent.
One of the 10 plants in this subcategory is expected to close, for an
employment loss of 561 jobs. In the Organics (Part A) group, the median
profitability reduction is expected to be 29.4 percent. Five of the 25
plants analyzed in the subcategory are expected to shut down their plastics
and organic chemicals production lines. The combined plant and line closures
are expected to result in an employment loss of 389 jobs. A median profit-
'a'bility reduction equal to 35.7 percent is expected for the Specialty
Organics subcategory. Of the 31 plants in this subcategory, three plants
are anticipated to close completely, and one additional plant is expected
to close its organic chemicals production lines. The total employment
loss is expected to be 228 jobs. In the Thermosets subcategory, the median
profitability decrease is expected to be 20.6 percent. One of the 20
plants analyzed in this subcategory is expected to shut down, and one other
plant is expected to close its plastics and organic chemicals production
lines causing an employment loss of 1,120 jobs.
All of the subcategories are expected to incur plant closings under
BAT Option III. (Table 6-5). Median profitability decreases for subcate-
gories range from 16.4 percent (Commodity Organics) to 146.8 percent (Rayon)
and median production cost increases range from 1.2 percent (Other Fibers)
to 7.1 percent (Rayon). The Bulk Organics, Specialty Organics and Rayon
subcategories are the most affected. In the Bulk Organics and Specialty
Organics subcategories, BAT Option III is expected to completely shut down
six plants each and expected to close the plastics and organic chemicals
production lines at three plants each. In the Rayon subcategory, one of
the three plants is expected to close. The employment losses in Bulk
Organics and Specialty Organics are 2,075 jobs and 1,529 jobs, respectively. 1
The employment loss in Rayon equals 1,024 jobs. I
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6-8
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6-10
The remaining subcategories are somewhat less affected by the BAT
Option III compliance costs. In the Commodity Organics subcategory, the
median profitability reduction is 16.4 percent, but two of the 24 plants
analyzed have closure effects (one plant closure, one plant with closures
for its plastics and organic chemicals production lines). The employment
loss due to these projected closures equals 812 jobs. In the Thermoplastics
subcategory, BAT Option III costs result in two plant closures and one plant
closing its organics and plastics production lines. The total employment
loss in this subcategory equals 703 jobs. In the Thermosets subcategory BAT
Option III costs cause two plants to close their plastics and organic chemicals
production lines compared to one under BAT Option II. Both options result
in one plant closure in this subcategory. The additional line closure results
in an incremental employment loss of 126 jobs above that associated with BAT
Option II, for a total of 1,246 jobs lost.
The remaining subcategories incur little or no impacts above those
projected under BAT Option II.
6.2.3 PSES Impacts
As discussed in Section 4, only PSES Option III has been fully evaluated
for all the impact analyses. No analysis specific to PSES Option I has been
performed, though the costs and impacts are estimated to be less than those for
PSES Option III. The impacts for PSES Option II have been estimated only for
the plant level impacts. These impacts are summarized in Appendix 6A. The
costs for both PSES Options I and II will be refined and incorporated into the
full impact analysis for the final rules. The impacts of PSES Option III are
summarized here.
Most of the subcategories are somewhat affected by PSES Option HI.
(See Table 6-6). The Bulk Organics subcategory is expected to incur a median
profitability reduction of 23.9 percent as a result of PSES compliance costs.
Of the 39 plants analyzed in this subcategory, three are expected to close
completely, and two are expected to shut down plastics and organic chemicals
production lines. These combined closures result in 211 job losses. For the
Commodity Organics subcategory, one of the 10 indirect plants is expected to
close. The Organics (Part A) results show that 9 of the 49 plants analyzed
are expected to shut down their plastics and organic chemicals production
lines, causing 135 job losses. The median decrease in profitability in this
subcategory is estimated at 32.4 percent. The Others subcategory is expected
to incur a 20.3 percent median decrease in profitability. Of the 45 plants
analyzed in this subcategory, one plant is anticipated to close down completely,
and four plants are expected to shut down their plastics and organic chemical
production lines, resulting in total employment losses equal to 134 jobs.
Among the subcategories hardest hit by PSES costs is Specialty Organics.
The median profitability decrease is estimated to equal 39.6 percent, and 14
of the 79 plants analyzed are estimated to shut down at least part of their
production. Ten plants are expected to close completely, and an additional
four plants are expected to close their plastics and organic chemical produc-
tion lines. The combined closures result in employment losses of 465 jobs.
The Thermoplastics subcategory is estimated to incur a median profitability
-------
6-11
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reduction of 14.4 percent. On.- yla-it jf the 52 analyzed In this subcategory
is anticipated to close completely and three additional plants are expected
to -shut down chelr plastics and organic chemicals production lines, for a
loss of 50 jobs. For the Therinosecs subcategory, the expected decrease in
profitability is 23.0 percent. Six of the 56 plants analyzed are expected to
shut down their plastics and organic chemical production lines. These combined
closures result in employment losses of 70 jobs.
6.3 Firm Level Impacts
6.3.1 Firm Level Investment Impacts
Investment impacts for firms that own plants that are projected to close
are estimated for three combinations of regulatory options. Table 6-7 summarizes
the results of the analysis for the following three combinations of options:
1. BPT Option II only
2. BPT Option II, BAT Option II, and PSES Option III
3. BPT Option II, BAT Option III, and PSES Option III
For the first combination, BPT Option II only, 10 firms each have one
closure. The ratios of treatment capital cost to firm annual investment are
generally small at this combination. Nine of the 10 ratios for the firms are
less than 0.5, while the remaining value is over 1.0. No public data are
available on the high impact firm's current investment expenditures and the
calculated ratio depends on the 308 survey data, which is from 1982 when
industry investment was low. This firm may or may not have trouble financing
the project independent from the factors considered in the plant closure
analysis.
Under the second combination, 76 closure candidates are identified in the
plant closure analysis. These plants are owned by a total of 70 firms. Forty
of the firms have treatment capital cost to firm investment ratios of 0.5 or
less. Six firms have ratios between 0.51 and 1.0. Of the 22 firms with ratios
greater than 1.0, 21 have no publicly available firm investment data, and almost
all of the firms have only one or two plants covered by this regulation. Thus,
it is difficult to determine whether financing the capital equipment and land
would be infeasible without further information. The remaining plant that has
public data on capital investment appears to have large expenditures required
in relationship to its 1982 capital investment. Therefore, this firm may
experience problems in financing.
Under the third combination of regulatory options, 94 closure candidates,
owned by 79 firms, are identified. Forty-two of the firms have ratios of treat-
ment capital cost to firm investment of 0.5 or less and nine firms have ratios
between 0.51 and 1.0. Twenty-five of the 26 firms with ratios greater than 1.0
have no publicly available capital investment data. Thus, it is difficult to
ascertain whether these firms will have problems in financing capital equipment
and land. The remaining firm is the one discussed above under the second combina-
tion, and may have problems in financing aside from the factors considered in the
plant closure analysis.
-------
6-14
6.3.2 Firm Level Financial Ratio Analysis
The corporate database contains 123 public companies for which the financial
ratio analysis was performed. A total of 28 firms are identified as vulnerable
on the basis of the three financial ratios calculated. Many of these firms are
diversified into many manufacturing and retail sectors beyond the organic chemicals
and plastics products covered by this regulation. Of the 28 firms, 11 are not
considered to be serious candidates for financial problems because of their
steadily improving ratios over the five-year time period evaluated.
The remaining seventeen firms were cross-matched with the projected closure
candidates. Five of the firms classified as vulnerable own plants that are
projected to close at least part of their production. Two of the five firms
have negative 5-year median returns on net worth, and the remaining three firms
have positive returns of less than 6.9%. These figures suggest that the projected
plant closures could affect the financial health of the five parent firms.
6.4 Community Impacts
6.4.1 Summary
The analysis found no significant community impacts resulting from either
BPT or PSES regulatory options. However, under BAT Options II and III, some
communities are expected to experience community impacts resulting from closures.
When the regulations are considered jointly, there are no further expected
community impacts.
6.4.2 BPT Impacts
A total of ten plants are projected to close either their plant or
production lines as a result of BPT. Of the ten areas that might be affected
by a BPT closure, only one has an employment-loss-to-population ratio of greater
than 0.44 percent. The plant in question is located in a municipality with
a population of 700. The township where the municipality is located has a
population of over 8,000 and the county has a population of nearly 85,000.
Comparing the employment loss to the township employment yields a ratio of
only 0.15 percent; therefore, it is not likely to be a significant community
impact.
6.4.3 BAT Impacts
BAT Option II is projected to result in 22 plants either closing completely
or shutting down organics and plastics production lines. Of the 22 communities
that might experience a closure under BAT Option II, five have ratios of
employment-loss-to-population greater than the impact criterion of 0.44 percent.
The ratios range from 0.65 to 5.08 percent. None of these five communities
are located in a metropolitan area. Due to other locational factors, two of
these communities are likely to experience community impacts, two are not, and
the fifth is a borderline case in this regard.
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6-15
T'.ie u*o closures under BAT Option II Chat will not involve community
impacts oc^ur IT relatively snail communities (populations of 315 and 7,811)
located LO-2U miles from much larger communities, If the employment loss is
compared to the population of these larger communities, then the ratios in
these instances drop to 0.33 and 0.19 percent — below the impact criterion.
In 1982 the counties where these communities are located had unemployment
rates of 6.7% and 9.0%.*
In contrast, the two communities that are likely to experience community
impacts were in counties that had relatively high unemployment rates in 1982,
13.6% and 15.0%. They both involve plant closures, and even when the populations jj
of nearby communities are included, the ratios of employment-lost-to-population £
are above the impact criterion level. |
The closing of the smaller plant, which employs 174 workers, will also 5j
result in an additional estimated loss of 659 jobs when the indirect employment ||
effects are counted. Not all of these jobs will be in the community. The i
closing of the large plant, which employs 561 workers, will result in additional .i
losses of 1,092 jobs. Some of these will also be in the immediate community. ;'
The borderline case has an employment-loss-to-population ratio of 0.65, f
which is slightly above the criterion level. It is a product-line closure |
involving about 5.4% of the plant's employment. Some of the workers may be |
retained to produce other products at this plant. However, there are no large ;'
communities within easy commuting distance, and the county unemployment rate |
was relatively high in 1982 (12.9%). These factors would make it difficult |
for persons who have lost their jobs to find new ones. Thus, this community |
may incur significant impacts. f
!
BAT Option III results in an additional 17. plants closing at least some of
their production lines. Five of these incremental closures result in employment- ;
loss-to-population ratios greater than the impact criterion level. Two of the ;•
closures involve the entire plant, each of which is located in a small community |
(populations of 1,831 and 2,388). Even if the employment loss is compared to 1
the county populations, the ratios exceed the impact criterion. In addition, f
the unemployment rate in one of the counties in 1980 (at 20.1%) far exceeded I
the national average. The unemployment rate in the other county, at 9.7%, was
slightly above the national average. Thus, these two closures will have a
significant impact on their communities.
The smaller plant employs 331 workers; based on the multipler analysis, the
closure result in the loss of an additional 4,599 jobs. The larger plant employs |
366 workers; the estimated indirect job losses equal 8,189 jobs. As noted above,
some of these jobs will be lost in other communities.
One of the three borderline cases is a product-line closure at a plant in
a very small community (population of 400). The product-line employs about
25% of the plant's workers, and some of these may be retained. The county
* The 1982 national average for unemployment among all civilian workers was 9.7%.
Among all workers (Armed Forces includes) the national average was 9.5%.
-------
6-16
unemployment rate was high in 1980 (15%). However the community is only about
35 miles from a city of nearly 220,000. If the employment loss is compared to
the city population, the ratio is only 0.24%. Therefore, this closure may not
have a significant impact on the local community.
The second borderline case involves a product-line that employs about 39%
of the plant's workers, and some of these employees may be retained. If the
employment loss is compared to the county employment, the ratio is 0.72%.
Even though the county unemployment rate in 1980 (at 11.9%) was somewhat above
the national average, the county may be able to absorb these workers without
undue trouble.
The third borderline case is likely to close its OCPSF operations. However,
the employment figures seem unreasonable in light of the production at the plant.
Therefore, more information will be obtained to determine whether the employment
will cause a significant community impact.
The two plants whose closings would result in significant community impacts
employ 366 and 331 workers. The closure of the larger plant would result in
indirect employment losses of an additional 8,189 jobs, for a total loss of
8,555 jobs. The closure of the smaller plant would result in the indirect
employment losses of an additional 4,599 jobs, for a total loss of 4,930 jobs.
Some of these jobs will be lost in other communities.
6.4.4 PSES Impacts
Only one of the 44 areas with a PSES closure candidate under PSES Option III
has an employment-loss-to-population ratio greater than the community impact
criterion level. This is a product-line closure involving about 10 percent of
the plant's total employment, and some of these workers may be retained by the
plant to produce other products. The plant is located in a large port area,
but the two nearest cities with populations of over 100,000 are both over 80
miles away (one city has a population of over 140,000, the other over 540,000).
Therefore, replacement jobs may be hard to find or far away, depending on the
residential locations of those employees losing jobs. However, unemployment
in this area has not been high in the last few years. In 1982, when the national
unemployment rate was 9.7%, the unemployment rates for these two large cities
were 6.9% and 8.7%. Therefore, this closure is a borderline case in terms of
whether it would have a significant adverse impact on the community.
6.5 Balance of Trade Impacts
6.5.1 Summary
Two analyses were performed to assess foreign trade impacts: (1) a
measurement of loss in production for products important to foreign trade and
(2) an estimate of maximum price increases resulting from the regulations.
Under either of these measures the BPT and PSES regulatory options are not
expected to have foreign trade impacts. Under the loss of production criterion,
BAT Option II is expected to have a small impact on one of the four chemical
groups and BAT Option III is expected to have a small impact on two of the four
chemical groups. However, in terms of price increases, neither BAT Option II
nor BAT Option III will have an impact on the United States balance of trade.
-------
6-17
6.5.2 Losses to Production
A total of 26 chemicals have been identified as important for balance of
trade according to the criteria discussed in Section 3. The appropriate 8-digit
SIC code has been assigned to each chemical on the list, and the criteria which
each chemical meets are listed. (See Table 6-8). The four SIC codes which
cover the 26 chemicals are:
SIC 28213007 Thermoplastic Resins and Plastic Materials
SIC 28243335 Acrylic and Modacrylic Fiber, Except Producer
Textured, Staple
SIC 28697001 Miscellaneous Cyclic and Acyclic Chemicals
and Products
SIC 28651008 Cyclic Intermediates
These four chemical groups vary greatly in terms of total production. SIC
28243335 has a production of 296 thousand tons, while SIC 28697001 has a
production of nearly 38 million tons.
The 26 chemicals were matched to the products of the plant and product-
line closure candidates, to determine the proportion of production that will
be affected by the closures resulting under the various regulatory options.
Table 6-9 lists the percentage of production lost in each of the four 8-
digit SIC codes under each regulatory option. Closures and production lost
are incremental to the preceeding regulation in the sequence, i.e. BPT is
incremental to RCRA, BAT is incremental to BPT, and PSES is incremental to
RCRA. However, between options for a given regulation, e.g. BPT Option I
vs. BPT Option II, the production lost is not incremental since these are
alternative options.
Under BPT Option I and BPT Option II, there are product-line closures at
six plants, plus four plant closures. These closures would result in no loss
in production for two of the four chemical groups of concern, and very small
losses for the other two groups. Thus, there will be no balance of trade
impact resulting from BPT.
Under BAT Option II there are projected product-line closures at 11
plants plus 11 plant closures. Closures are estimated to be somewhat
higher under BAT Option III — 19 product-line closures plus 20 plant
closures. The percentage of production lost is also higher under BAT
Option III as compared to BAT Option II. Under BAT Option II there is no
1'oss of production for one chemical group, and small losses of less than
one percent for two other groups. However, for SIC 28651008, there is a
production loss of over 5 percent. Under BAT Option III there still is no
loss of production for one chemical group, a loss of less than one percent
for another group, and losses of over 3 percent and 6 percent respectively
for SICs 28697001 and 28651008. If the drop in production is distributed
-------
6-18
Table 6-8. Foreign Trade Impacts - Foreign Trade
Chemical
SIC
28213007
28213007
28213007
28213007
28213007
28213007
28213007
28213007
28213007
SIC
28243335
SIC
28697001
28697001
28697001
28697001
28697001
28697001
28697001
28697001
28697001
28697001
SIC
28651008
28651008
28651008
28651008
28651008
Name
HOPE
LDPE
PVC
PV alcohol
SAN
Polypropylene
Polycarbonate
Nylon 6 Resin
Nylon 66 Resin
Name
Acrylic Fiber
Name
Methanol
VAM
Isopropanol
Propylene Glycol
Butyl Acrylate
Ethyl Acrylate
2-eh Acrylate
Methyl Acrylate
Acrylonitrile
n-butanol
Name
MDI
TDI
Styrene
P-xylene
0-xylene
Sensitive Chemicals
Criteria
#1
V
V
V
V
V
V
V
V
V
V
V
V
V
V
V
V
V
V
V
Indicating Sensitivity*
#2 #3 #4
V
V
V
V
V V
V
V
V
V V
V
V V
V
V
V
V
V
V V
V
V
V
V
V
V
V
V
V
V
V
V
V
V
V
V
V
-------
6-20
Table 6-9. Production Lost in Foreign Trade Sensitive Chemicals
Due to Closures
SIC
28213007
28/43335
28651008
28697001
28213007
28243335
28651008
28697001
28213007
28243335
28651008
28697001
Total
Production
(000 Tons)
Production
Lost
(000 Tons)
Percent
Lost
BPT OPTION I
17,489.5
295.7
10,598.1
37,904.9
1.429
0.00
0.00
34.6
0.008
0.0
0.0
0.091
BAT OPTION II
17,489.5
295.7
10,598.1
37,904.9
0.757
0.00
561.6
351.1
0.004
0.0
5.30
0.926
PSES OPTION III
17,489.5
295.7
10,598.1
37,904.9
33.4
0.00
7.9
69.5
0.191
0.0
0.075
0.183
Total Production
Production Lost
(000 Tons) (000 Tons)
Percent
Lost
BPT OPTION II
17,489.5
295.7
10,598.1
37,904.9
1.429
0.00
0.00
34.6
0.008
0.0
0.0
0.091
BAT OPTION III
17,489.5
295.7
10,598.1
37,904.9
53.1
O.OU
692.6
1,231.0
0.304
0.0
6.54
3.25
* Closures and production lost are incremental to the preceeding regulation in
the sequence, i.e. BPT is incremental to RCRA, BAT is incremental to BPT, and
PSES is incremental to RCRA. However, between options for a given regulation,
e.g. BPT Option I vs. BPT Option II, the production lost is not incremental
since these are alternative options.
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6-21
evenly between domestic sales and exports, then this would result in
respective decreases in exports of 3 percent and 6 percent, which could be
significant. However, referring back to Table 6-8, many of the specific
chemicals in these two SIC groups are forecast to have significant decreases
in net exports as a percentage of production (Criterion r/3) regardless of
imposition of effluent limitation regulations. Therefore, the regulations are
worsening an already bad situation for the producers of these chemicals.
Under PSES Option III, there are projected product-line closures at 28
plants, plus 16 plant closures. However, these closures result in relatively
small reductions in production of the four chemical groups of concern. The
percentage of production lost ranges from none in one chemical group to less
than one-fifth of one percent for two chemical groups. There is no balance of
trade impact resulting from the PSES regulation analyzed.
6.5.3 Percentage Price Increases
Price increases were calculated for each 4-digit SIC code, assuming prices
increase by the average cost increase incurred by plants with production in the
relevant SIC code. Table 6-10 lists the incremental price changes for some of
the regulatory options. As expected, the price increases due to the BPT or PSES
options are much smaller than those that would result from BAT options. In
addition, price increases are greater for organic chemicals (SIC 2865 and 2869)
than for plastics and synthetic fibers. In combination, the price increases
resulting from the options are less than two percent. (See Table 6-11). When
the less stringent options for BPT, BAT and PSES are evaluated, the price
increases range from 0.37 to 1.66 percent among the SIC groups. When the more
stringent options are evaluated, the price increases range from 0.55 to 2.40
percent. Price increases of this magnitude should not have a major impact on
U.S. balance of trade, since forecasts by DRI show that the consumer price index
is likely to rise by 28% between 1982 and 1988. The price impacts across each
SIC resulting from the regulation are small relative to the effects of other
factors on prices.
6.6. Small Business Analysis
6.6.1 Introduction
The Regulatory Flexibility Act (RFA) of 1980 (P.L. 96-354), which amends
the Administrative Procedures Act, requires Federal regulatory agencies to
consider "small entities" throughout the regulatory process. The RFA requires
that an initial screening analysis be performed to determine if a substantial
number of small entities will be significantly affected by a regulation. If
so, regulatory alternatives that eliminate or mitigate the impacts must be
considered. This analysis addresses these objectives by identifying and eval-
uating the economic impacts of the aforementioned regulations on small organic
chemicals, plastics and synthetic fibers manufacturers. The small business
analysis is an integral part of the general economic impact analysis. It is
based on the examination of the distribution by size of the number of plants
analyzed for economic impacts and projected closures as a result of the
regulations.
-------
Table 6-10. Increnental Price Increases Due to Regulatory Options
uption
BPT Option I
BPT Option II
BAT Option II
BAT Option III
PSES Option III
Source: EPA Est:
Combination
of Options
BPT Option I
+BAT Option II
+PSES Option III
BPT Option I
+BAT Option II
+PSES Option III
(Incremental Percent Price Increases)
— — — — — — — — — vj j_^ oroup
2821 2823 2824 2865
0.18 0.07 0.07 0.30
0.19 0.08 0.08 0.32
0.59 0.24 0.23 0.97
0.96 0.39 0.38 1.58
0.19 0.08 0.07 0.31
Lmates
Table 6-11. Total Price Increases Due to
Combinations of Regulatory Options
(Total Percent Price Increases)
~ — SIC Group
2821 2823 2824 2865
0.96 0.39 0.37 1.58
1.34 0.55 0.53 2.21
2869
0.32
0.34
1.02
l.bb
0.32
•
2869
1.66
2.32
Source: EPA Estimates
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6-23
6.6.2 Small Business Definition
At proposal, the Agency selected a small business definition of less than
50 employees for purposes of the small business analysis. A number of comments
were received stating that this definition was inappropriate.
EPA is now revising the definition to correspond to plants which have
value of shipments of OCPSF products of less than $5 million annually. This
new definition is based on an analysis of projected closure candidates. This
analysis is summarized below.
The Agency sought a measure that would account for size and provide
EPA with alternative definitions of "small" plants. Since the available data
are the most reliable and cover the largest number of manufacturers on a
plant basis, the plant facility, rather than the firm, was used as the
basis of the analysis. £j
P
Value of shipments is used as the primary variable to distinguish size [
because it is incorporated directly into the plant closure analysis. Plant- . !t
level employment was an alternative measure; however, because of measurement •-
problems in the Section 308 survey,* this was thought to be a less reliable [•
measure of size. The plants analyzed were divided into eight tiers (based on |
annual plant-level OCPSF value of shipments) for examining the relative impacts I
among different size plants: P
o^ less than $1 million o $ 10 -$ 50 million f
o $1 - $2.5 million o $ 50 -$100 million I
o $2.5 - $5 million o $100 -$500 million \
o $5 - $10 million o more than $500 million >
As mentioned in Sections 3 and 5, the plant closure methodology incorporates
different operating parameters for smaller facilities based on Robert Morris
financial ratios. Therefore, the baseline conditions for the industry already
incorporate some distinguishing characteristics between small and large facilities.
6.6.3 Summary of Analysis
The evaluation of small business impacts is an analysis of projected
closure candidate placement among the eight size tiers. Table 6-12 summarizes
the results of this analysis.
A total of 860 plants responded to the 308 survey with enough data to make
a size determination. From these, a total of 637 plants are expected to incur
costs and were analyzed for this economic impact analysis. The industry has a
bimodal size distribution, with the two most populous size tiers being the
$10-$50 million and $100-$500 million value of shipments levels.
* The survey was not clear in distinguishing between all employees versus j
production employees only. Conversations with some respondents confirmed |
that plants used both measures in answering the Section 308 survey. "
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6-25
The economic impact analysis shows that projected closures are more heavily
weighted among the smaller facilities, especially at BPT and PSES. At either
bPI option, all 10 closure candidates nave value of shipments of less than $5
million annually. At PSES Option III, 33 of the projected closures are also
plants with less than $5 million value in OCPSF shipments. Thus, while plants
with less than $5 million value of shipments represent 24 percent of all plants,
they incur 100 percent of the BPT closures and 75 percent of the PSES closures.
At the BAT levels of control, the effect on small business is less pronounced.
While the percentage of all plants with OCFSF value of shipments less than $5
million annually is 24 percent (as above), 40 percent of the projected closures
occur in plants in these size tiers; however, the closure rate is based on
both BPT and BAT closures. When the BPT closures are excluded, this figure
drops to nine percent. For BAT Option III, 31 percent of the combined BPT and BAT
closures occur in the small size tiers. When the BPT closures are excluded, the
percentage drops to 10 percent.
The cumulative effect of the BAT Option III and PSES options is summarized
in the final column of Table b-12. The percentage of plants closing within
each size tier steadily declines as the value of shipments increases, from
a high of 25 percent to a low of zero percent.
6.7 NSPS Impacts
6.7.1 Conventional Pollutant Controls
The detailed calculations and regression results of the NSPS analysis for
conventional pollutants are presented in Appendix 3-H. The results of the
analysis are summarized in this section. The analysis focuses on whether new '
source regulations will create barriers to new entry in the market if more
stringent limitations are set. This section evaluates the incremental cost
and impact in going from BPT Option II to BPT Option III (NSPS). •
From the model plants provided, EPA has estimated sales based on linear i'
regressions. The flow, sales and compliance costs used in the analysis are \-
presented in Table 6-13. As described in Section 3, small plants are modeled I
at the 25th percentile of flow and large plants at the 50th percentile of l!
flow. The Thermoplastics and Organics and the Thermosets subcategories have j'
the largest model plants by flow size; however, the Commodity Organics subcate- K
gory has model plants with large value of shipments. In all subcategories, E;
the incremental costs of treatment in going from BPT to NSPS are less than |
$0.5 million per model plant. The ratio of incremental costs to OCPSF sales x.
for each model plant is quite low, .ranging from 0.09 percent to 0.50 percent |
of sales. |;
If'
f.
In general, the incremental reductions in profitability resulting from |
NSPS are a fraction of the reductions resulting from BPT. (See Table 6-14). j';
The changes in profitability for BPT range from 3.7 percent to 34.8 percent r
for small plants and 4.7 percent to 30.4 percent for large plants. In all but ;
one case, larger plants incur a greater reduction than small plants. By j
contrast, the additional percentage decreases in profitability due to NSPS !
requirements range from 1.6 percent to 16.0 percent. In general, the profit
reductions due to NSPS are only about half of those incurred for BPT. •,"
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6-26
Table 6-13. ISSPS Model Plants and Annual Compliance
Costs for Conventional Pollutants
Subcategory*
Rayon
Thermosets
Thermoplastics
Thermoplastics
& Organics
Commodity
Organics
Bulk
Organics
Specialty
Organics
Flow
MGD
8.81
3.30
0.156
0.015
0.254
0.091
1.352
0.493
0.252
0.057
0.245
0.054
0.188
0.016
OCPSF
Sales
($ millions)
109.41
48.27
55.20
35.01
72.88
62.00
247.17
209.76
127.26
104.10
82.77
79.05
27.99
23.21
BPT
1.032
.521
.212
.118
.187
.140
1.689
.296
.208
.137
.189
.128
.229
.120
Total Annual Costs
($Millions)
NSPS Incremental
1.421
.761
.298
.182
.285
.218
1.855
.413
.306
.209
.286
.200
.320
.183
0.389
0.240
0.086
0.064
0.098
0.078
0.166
0.117
0.098
0.072
0.097
0.09z
0.091
0.063
Ratio of
Incremental
Costs to Sales
.0036
.0050
.0016
.0018
.0013
.0013
.0007
.0006
.0008
.0007
.0012
.0009
.0033
.0027
Source: EPA estimates
* The Fibers subcategory is not analyzed because the limitations for existing
and new sources are the same.
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6-27
Table 6-14. NSPS Impact Measures for Conventional Pollutants
SUBCATEGORY*
Rayon
Large
Small
Thermoset
Large
Small
Thermoplastic
Large
Small
Therm & Orgs
Large
Small
Therm & Orgs
Large
Small
Commodity
Large
Small
Bulk
Large
Small
Specialty
Large
Small
% Reduction
in Profit
with BPT
30.43
34.82
12.39
10.87
8.28
7.28
22.04
4.55
19.52
4.03
4.67
3.76
6.52
4.63
23.38
14.77
Incremental
Profit Reduction
NSPS-BPT (%)
11.47
16.04
5.03
5.90
4.34
4.06
2.17
1.80
1.92
1.59
2.20
1.98
3.35
2.60
9.29
7.76
% Reduction
in Liquidity
with BPT
20.31
23.92
9.24
8.19
6.19
5.49
15.14
3.42
16.58
3.74
4.34
3.49
6.04
4.30
21.73
13.72
Incremental
Liquid. Reduction
NSPS-BPT (%)
7.47
10.21
3.10
3.61
2.65
2.48
1.35
1.11
1.48
1.22
1.62
1.50
2.53
1.96
7.00
5.97
Source: EPA Estimates
The Thermoplastics and Organics subcategory is evaluated as both an
organic chemicals plant and a plastics plant.
-------
The results are similar for the liquidity analysis. Changes in liquidity
for BPT range from 3.4 percent to 23.9 percent, while those for NSPS range
from 1.1 percent to 10.2 percent.
Because the incremental cost to sales ratios are very small and the
incremental profitability and liquidity impacts are not large relative to BPT,
the incremental effect of this NSPS option is considered small for both small
and large plants.
6.7.2 Priority Pollutant Controls
Because of the wide variety of types and levels of pollutants found in
OCPSF wastewaters, the development of model plants for new sources was deemed
infeasible. Instead, the effect of more stringent regulations for new sources
is examined by comparing the incremental effects on profitability and liquidity
in going from BAT Option II to BAT Option III for existing dischargers.
Table 6-15 summarizes the range of incremental impacts. The additional
costs associated with BAT Option III have a wide range of effects on plant
profitability. The median incremental profitability reduction is 15 percent.
The tenth and nineteenth percentile reductions are 0 and 79 percent respectively.
In general, plants that would experience smaller profitability reductions in
going from current treatment to BAT Option II also have smaller incremental
reductions at BAT Option III.
The costs also result in a wide range of effects on liquidity. The median
reduction in the liquidity ratio in going from BAT Option II to BAT Option III
is nine percent, with the tenth and ninetieth percentile reductions equal to zero
and 58 percent, respectively. Little correlation is evident between the liquidity
impacts at BAT Option II and the incremental impacts at BAT Option III.
-------
6-29
Table 6-15. NSPS Impact Measures For Priority Pollutants
Percentile
10%
20%
30%
40%
50%
60%
70%
80%
90%
% Reduction
in Profit
with BAT II
13.51
10.16
16.15
16.69 :
5.61
47.57
43.33
40.77
95.21
Incremental
Profit Reduction
BAT HI - BAT II(%)
0.00
3.98
6.16
10.29
14.82
19.37
29.84
44.13
79.35
% Reduction
in Liquidity
with BAT II
28.76
7.23
5.72
53.64
28.63
19.03
43.36
37.29
0.71
Incremental
Liquid. Reduction
BAT III - BAT II(%)
0.00
2.56
4.20
6.69
9.49
13.66
19.93
29.65
57.92
Sources: EPA estimates
-------
Appendix 5A
PSES Option II Impacts
The impacts for PSES Option II have been run only for the plant level
analysis. The method used to calculate the treatment costs for this option
is described in Section 4.
The costs and impacts for PSES Option II are higher than those for
PSES Option II. Capital investment costs for PSES Option II are estimated
at $303.8 million versus $189.2 million for PSES Option III (1982 Dollars).
Operation and maintenance costs rise from $99.0 million for PSES Option
III to $107.7 million for PSES Option II. The total annualized costs are
23 percent higher under PSES Option II ($166.1 million for PSES Option II
versus $135.3 million for PSES Option III). Median profit reductions rise
from 26.0 percent to 32.5 percent under PSES Option II, while production
cost increases rise 33 percent (from 1.8 to 2.4 percent). The median
liquidity reduction increases from 16.3 to 22 percent. Plant closures rise
from 16 to 19, and the number of plants closing their organic chemicals and
plastics lines rise from 28 to 38. The resulting employment losses increase
from 1,073 to 1,595 jobs.
By subcategory, the Bulk Organics, Organics (Part A), and Specialty
Organics subcategories show the highest impacts for PSES Option II. (Table
6A-1). In the Bulk Organics subcategory, the median profitability reduction
under PSES Option II is 32.4 percent. Four plants and three lines close
under this Option. The total employment loss resulting from the combined
closures is 282 jobs. The Organics (Part A) group is expected to incur a
12.7 percent median profitability reduction. No plants are expected to
close, but 13 plants are expected to shut down their organic chemicals and
plastics production lines. The combined plant and line closures are expected
to cause employment losses of 159 jobs. For the Specialty Organics subcat-
egory, the median profitability reduction is expected to be 49.5 percent.
Twelve plants are expected to completely shut down, and five plants are
projected to close their organic chemicals and plastics production lines.
These combined plant and line closures are projected to cause an employment
loss of 775 jobs.
The remaining subcategories show less severe impact. The Thermoplastics
subcategory is expected to incur one plant closure and four line closures.
The Thermosets subcategory is projected to incur seven production line
closures. The combined employment losses for each subcategory are 55 and 72
jobs, respectively.' The other subcategories are not expected to incur any
plant closures or employment losses.
-------
6 A- 2
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Appendix 6B
Impact Results Incorporating All
RCRA Baseline Costs
This appendix summarizes the results of the baseline and impact analyses
including all the anticipated categories of RCRA baseline costs. (See
Section 4). Section 5.8 describes the impacts on plants in the baseline
case when part of the anticipated costs due to RCRA costs are incorporated.*
The impacts of the effluent regulations presented in Section 6 are calculated
from the baseline including only these partial RCRA costs.
Table 6B-1 compares the two RCRA baseline analyses. The number of
plants incurring costs under either baseline is the same at 933. Baseline
RCRA compliance costs in going from partial to full costs rise from zero to
$30.7 million in capital investment and from $2.8 to $7.9 million in operation
and maintenance, resulting in an increase in total annualized costs from
$2.8 million to $13.8 million (1982 dollars). The resulting baseline
impacts change only minimally when all the RCRA baseline costs are included.
The median profitability reduction increases slightly when all the RCRA
costs are included, from 0.4 to 0.5 percent, while the median production
cost and liquidity measures remain unchanged. One additional plant closures
under the full RCRA baseline (this plant previously closed under BPT Option
I), resulting in a baseline larger employment loss (70 versus 17 jobs).
The impact analysis computed from the full RCRA baseline analysis shows
almost identical results to those calculated from the partial RCRA baseline
(Table 6B-2). The only significant differences in the reported impacts occur ;
in the plant and production line closure impacts. At BPT Option I, only three :
plants close completely, one less plant than before (because it now closes in {
in the baseline). At BPT Option I, one additional plant closes (five versus
four plants). The plant and production line closures at the BAT Options II jji
and III are less with the full RCRA baseline (10 versus 11 for BAT Option II |
and 18 versus 20 for BAT Option III), because (1) the closures are shifted I,
to the baseline and BPT levels, and (2) no new plants close. Under the PSES |
options, one new production line closure occurs under each option (29 versus
28 for PSES Option III and 38 versus 37 for PSES Option II). The employment
losses increase only minimally.
Thus, the addition of the full RCRA baseline costs does not significantly
change any of the impacts in the baseline analysis or the regulatory analysis.
* Includes only the one-time site inspection cost.
-------
6B-3
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Section 7
Limits of Analysis
7.1 Introduction
This section addresses the limitations of the economic impact analysis
of the OCPSF industry. It discusses methodological assumptions and
restrictions placed on the analysis by data limitations. The sensitivity of
the results to several of these assumptions is examined in Section 8.
7.2 Methodology Limitations
7.2.1 1988 Baseline
Plant-specific sales data were collected for 1982 via a §308 Survey.
However, 1982 was an atypical year for this industry, due to the recession.
Therefore, 1982 sales are forecast to another year that is expected to be
more typical of conditions in the industry. Since the regulations are to be
promulgated in 1986, it is assumed that all plants will be in compliance by
1988; thus, baseline conditions in this industry are estimated for the year
1988 using the reported 1982 sales. The forecasts are based on the Data
Resources Inc. (DRI) Chemical Model. This model incorporates the results of
DRI's macro model of the national economy, and so includes forecasts of
overall economic activity as well as conditions specific to the chemical
industry. The model is considered quite accurate except for exogenous
changes to the economy such as government regulations.
The impacts of the RCRA regulations on the baseline are analyzed by
including a site-inspection cost for each plant in the primary analysis.
Another baseline RCRA case is run by including groundwater monitoring and
lagoon liner costs for randomly selected sets of plants. These costs are
more accurate in the aggregate than for any one particular plant, since it
is difficult to determine which plants will be subject to the RCRA
requirements. It is not feasible to incorporate plant-specific costs
resulting from all Federal regulations or even all EPA regulations, such as
Superfund and the Clean Air Act, because that information is not available.
However, the analysis presented in this report is an accurate measure of the
impacts of the specific Clean Water regulations under consideration at this
time.
7.2.2 Closure Analysis
The closure analysis is based on a comparison between the current
liquidation value of the plant and the present value of its cash flow,
including treatment costs, over ten years. The comparison assumes that the
plant owner's decision to close is based upon the factors quantified in this
analysis. But in practice, there are many other reasons that a plant or
product line may close or change its operations. For example, if a more
profitable product or opportunity is developed in the future, operations of
a plant projected to close may be shifted to the new market, and that plant
would remain open. To the extent that this might happen, our analysis
-------
7-2
overestimates the number of closures due to these regulations. Likewise,
our analysis may overestimate the impacts on secondary producers, plants
that produce small amounts of OCPSF products as adjuncts to their main
production. Their characteristics may be different from the rest of the
plants analyzed. For example, the OCPSF production may be by-products to
their primary products or may be intermediates used in the production of
their main product. In either case, the plant may continue production, even
though our analysis would indicate a closure.
The analysis examines OCPSF production and treatment costs associated
with OCPSF production. However in some cases, the closure of the OCPSF
product lines may result in a closure of the entire plant. The distinction
between a product-line and a plant closure was made on the basis of the
proportion of employment involved in OCPSF production. If 80% of the
plant's employment was involved in OCPSF production, then the closure was
assumed to affect the entire plant. Otherwise, only the OCPSF production
ceased (product-line closure) while the rest of the plant remained open.
The distinction between plant and product-line closures based on this
measure is not very sensitive to employment ratios of between 40% and 80%,
as shown in Table 7-1 for two of the regulatory options.
Other factors may be more important in terms of whether only the OCPSF
production lines close. Integration with the plant's other operations is a
primary factor that may or may not be related to the percent of total
employees committed to the OCPSF production lines.
7.2.3 Cost Pass-Through
The analysis does not attempt to estimate directly the portion of
treatment costs that are passed on to the consumers of OCPSF products.
Instead, each impact measure uses those assumptions about cost pass-through
that result in the most conservative, or worst case, estimates. The
profitability, liquidity,_.and closure analyses assume that none of the
treatment costs are passed through but are borne entirely by the plant.
This results in the largest possible declines in profitability and
liquidity, and the largest number of closures.
The product price impact analysis, on the other hand, assumes that the
industry's entire cost of treatment is passed on to consumers.
Specifically, the price increase for each of the five 4-digit SIC groups is
equal to the total cost of treatment for that SIC group divided by the total
sales of that SIC group.
7.3 Data Limitations and Evaluation
7.3.1 Treatment Cost and Sales Data
As described above, plant sales are forecast for 1988, based on:
(1) reported plant sales in 1982, (2) predicted changes in capacity utiliza-
tion rates, and (3) changes in real prices. Treatment costs are estimated
in 1982 dollars, based on the 1980 OCPSF production and wastewater flows
reported by plants. Production levels are forecast to be larger in 1988
-------
7-3
Table 7-1. Breakdown of Closure Candidates by
OCPSF Employment as Percent
of Total Plant Employment
BAT III
PSES III
OCPSF Employment as
Percent of Total Employment
0 - 40%
40 - 60%
60 - 80%
80 - 100%
Total
Numbe r
of Plants
13
4
2
20
39
33.3
10.3
5.1
51.3
100.0
Number
of Plants
24
3
1
16
44
54.5
6.8
2.3
36.4
100.0
Source: EPA estimates.
than they were in 1982, and 1980 production levels were higher than 1982
levels. Therefore, the sales and cost estimates are specific to each plant
and reasonably comparable.
7.3.2 Financial Data
Each financial variable used in the analysis (e.g. profit before taxes,
cash flow, and liquidation value) is estimated for each plant. The estimated
value is equal to the product of the plant's baseline sales and the financial
variable's median value. The median values are calculated for each of two
size groups and for each of the five 4-digit SIC groups. The median value for
each financial variable is calculated for the 1976-1982 period because the
analysis assumes that these medians approximate the 1988 baseline. The ratios
are specific to the size and product groups of the plant, making the plant-
specific analysis reasonably accurate. In the sensitivity analysis section of
this report, an alternative set of financial ratios (drawn from another data
source) is used in order to examine the sensitivity of the results to the
values used for the financial ratios.
•
7.3.3 Cost of Capital
In order to annualize capital costs of treatment and to discount the time
stream of cash flows, an industry average weighted cost of capital is used.
Plants subject to higher rates of interest will be offset by those with lower
rates of interest, so that aggregate impacts are properly estimated. The
sensitivity analysis section of this report examines three alternate scenarios
for values of the real and nominal costs of capital, including varying the
rates of interest by size of firms.
-------
7-4
7.3.4. Liquidation Value
If a plant is closed, then the owners can recover part of the current
assets and part of the fixed assets. It is assumed that they will pay-off
their current liabilities and keep that portion of current assets in excess of
current liabilities. If the firm has taxable income, such as from other
plants, then the book value of the fixed assets of the plant could be used as
a tax write-off. However this often is not possible, especially with acceler-
ated depreciation, and so an estimate of the percent directly recoverable was
made. Based on studies of other industries, it is assumed that the salvage
value is 20 percent of the book value of fixed assets. Since the closure
analysis compares discounted cash flow to the liquidation value, a significant
underestimate of liquidation value would result in an underestimate of the
number of closures resulting from the regulation. Therefore, the estimate
attempts to be as accurate as possible given the scanty amount of information
available on the value of assets of individual plants, without estimating a
value that is significantly lower than the actual value.
7.3.5 Production Costs
In estimating the increase in production costs due to the regulations, it
is assumed that production cost per unit production is identical for OCPSF and
non-OCPSF products. This assumption allows for a direct comparison of
plant-specific treatment costs to plant-specific production costs. This
assumption is necessary since the §308 Survey provides only total production
costs for each plant, while treatment costs are estimated only for OCPSF
operations at a plant.
7.3.6 Production Impact
The production decline is calculated on the basis of OCPSF production at
plants identified as plant or product line closure candidates. This may
overstate production decline since some of the production lost when a plant
closes down may be recovered by plants that remain open. On the other hand,
production line closures may be underestimated because the total value of all
OCPSF products is included in the closure analysis. Therefore, the production
impact measure is a conservative estimate, but one that is close to the actual
production loss likely to occur.
7.3.7 Employment Impact
The decline in employment is assumed to occur only at plants identified
as plant or product line closure candidates. This assumption is necessary
because production decline is assumed to occur only at closure candidates, as
stated above. Again, this may slightly overestimate the employment impacts.
7.3.8 Balance-of-Trade Impacts
The impacts of these regulations on the U.S. balance of trade are
extremely difficult to predict, since they depend on many foreign and domestic
factors that cannot be included because the necessary information is not
available. The approach used in this analysis examines the balance of trade
situation forecast for 1988 by DRI, and compares the changes resulting from
-------
Section 8
Sensitivity Analysis
8.1 Introduction
This section examines the sensitivity of the results of the economic
impact analysis to changing four financial parameters: plant OCPSF sales,
financial ratios, estimation of cash flow, and the cost of capital. The
results of the sensitivity analyses for selected options are compared with the
results of the standard analysis.*
8.2 Sales Estimates and Treatment Costs
Sales estimates for each plant are increased by 10 percent and decreased
by 10 percent in order to determine the sensitivity of the analysis to this
information. Because the closure, profitability, and liquidity analyses rely
on financial data which are calculated using sales ratios, an increase in
sales of 10 percent is equivalent to a decrease in treatment costs of 10
percent. Similarly, a decrease of 10 percent in sales is equivalent to an
increase of 10 percent in treatment costs. Columns (2) through (5) in Tables
8-1 through 8-4 summarize the results of these changes. Column (1) shows the
results of the standard analysis.
When sales are increased by 10 percent there are proportional decreases
in the liquidity and profitability impacts across all of the options and there
are marginally fewer plant and product line closure candidates.**
When sales are decreased by 10 percent there are proportional increases
in the liquidity and profitability impacts, while the number of closure
candidates increases. The increase in combined plant and product line
closures is from 22 to 25, and from 39 to 46, for BAT Options II and III
respectively.
8.3 Financial Ratios
In the standard analysis, financial calculations are based upon ratios
obtained from Robert Morris Associates. The sensitivity analysis calculations
are performed using an alternate set of ratios based on Finstat data (a
financial data base developed by the U.S. Small Business Administration) where
* PSES Options I and II, BPT Option I and BAT Option I are not analyzed in
this section.
** In a few cases (e.g. BAT Option II) the number of closure candidates
increases because a plant which closes under BPT in the standard analysis
stays open under BPT but closes under BAT in the sensitivity analysis.
-------
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Number of Plants Incurring Cost 6 306
Incremental Annual Costs for All
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Decrease in Profitability (median) 0
Cost/Annual Invest menl (median) 0
Increase in Prod, cost (median) 0
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Plant Closures 20
Product Line Closures , 19
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8-4
these data are available. For those ratios with data not available from
Finstat, the Robert Morris data are substituted. Tables 8-1 through 8-4 show
that using Finstat data results in larger declines of profitability and
liquidity and in a higher number of closure candidates. For a detailed
comparison of Robert Morris and Finstat for several of the financial ratios,
see Appendix 8A.
8.4 Cash Flow
For this test, depreciation is excluded from the calculation of cash
flow, so that cash flow (defined as net income plus interest) is lower than in
the standard analysis in every case. With lower cash flow, the decline in
liquidity is larger and there are more closure candidates. Under BPT Option
II, combined plant and product line closures increase by 150%, from 10 to 25
plants affected. Combined closures under BAT Option II increase by 91%, from
22 to 42 plants affected. Under BAT Option III, combined plant and production
line closures rise from 39 to 82, an increase of 110%. Combined closures
under PSES Option III increase by 70%, from 44 to 75. The median decline in
liquidity increases to 58% across all options under this sensitivity test. If
depreciation is not included in cash flow it is appropriate to assume that a
similar amount is reinvested in plant equipment, thereby increasing the
liquidation value of the plant at the termination of the project. The net
present value of the project equals the present value of the stream of cash
flows plus the present value of the terminal liquidation value. Therefore,
the effect of excluding depreciation from cash flow is ameliorated by the
increase in terminal liquidation value. However, in order to examine the
maximum sensitivity of the analysis to the definition of cash flow,
depreciation is excluded from cash flow for this test but terminal liquidation
value is not adjusted and remains equal to zero.
8.5 Weighted Average Cost of Capital
The weighted average cost of capital (WACO is incorporated into the
discounted cash flow and liquidity analyses, and the annualization of
treatment costs. To perform these analyses, both real and nominal rates are
used. In this sensitivity analysis, we examine three alternative cases for
the WACCs:
Case 1: Nominal WACC is increased by 3 points, and corresponding
increases are also made to real WACC.
Case 2: Nominal WACC is decreased by 3 points, and corresponding
decreases are also made to real WACC.
Case 3: A nominal WACC premium of 2 points for small plants is
incorporated into the real WACC. (This affects only the plant
closure analysis.)
The WACCs for the standard analysis and each alternative case are
presented in Table 8-5.
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Appendix 8A
Comparison of Results of EPA
Using Robert Morris Versus Finstat
Financial Ratios
Sections 3 and 5 of this report discuss the financial ratios used in the
analysis, which are taken from Robert Morris Associates. An alternative
source of financial data is the Finstat database developed by the U.S. Small I
Business Administration from data originally supplied by the Dunn and f
Bradstreet Corporation. |
«
The Finstat file contains detailed balance sheet items and several items (
from income statements. A full description of Finstat is contained in the \.
Administrative Record for this regulation.* •
5;
The ratio of liquidation value to baseline present value of cash flow may •.
be calculated for each SIC using the SIC-specific financial ratios from '
Finstat or Robert Morris. Tables A8-1 and A8-2 show the financial ratios from
Finstat and Robert Morris which are used in this analysis for all plants and [
for small plants, respectively. The Finstat data are used to calculate the t
median value for each variable during each year. The medians of these annual ,
medians over the years 1976-81 are shown for each variable in Tables A8-1 and ;
A8-2. Table A8-3 compares three calculated ratios important to the closure \
analysis for each SIC between Finstat and Robert Morris for all plants. These •
three financial ratios are
1) liquidation value as percent of sales,
2) baseline present value of cash flow as percent of sales, and
3) ratio of liquidation value to baseline present value of cash flow. ;;
Table A8-4 shows the same comparison for small plants (less than 1 I
million dollars total assets). Several observations can be drawn from the j
data presented in these tables. j
* Examining and Evaluating the Financial Statistics (FIN/STAT) File of the
U.S. Small Business Administration, Office of Advocacy, U.S. Small Business
Administration, April 1985.
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8A-4
First, for all SIC' s in both size groups, the liquidation value estimate
as a percent of sales is much higher when the Finstat data are used. This
appears to be the result of lower current liabilities estimates using Finstat
as compared to Robert Morris. A second observation is that the ratio of
liquidation value to baseline present value of cash flow is much higher using
the Finstat data instead of Robert Morris.* One would expect, therefore, that
there would be a higher number of closure candidates when the Finstat data are
used.
A third observation is that the ratio of liquidation value to baseline
present value of cash flow is lower for small plants than for all plants when
using Finstat. Therefore, under FINSTAT, small plants are less likely to
close (other things equal) in all SIC's except 2824, which is represented by a
very small number of plants. Though the Finstat data result in a larger
number of closure candidates, a smaller proportion of these candidates are
small plants.
Finally, the ratio of liquidation value to baseline present value of cash
flow is much higher (80 to 90% in some cases) for the organic chemicals SIC
codes (2865, 2869) than for the plastic and synthetic fibers SIC codes (2821,
2823) when Finstat data are used. There are two reasons for this difference.
First, profit before tax as a percentage of sales is significantly lower for
the all plants category reported for the SIC categories 2865 and 2869 under
Finstat. Second, the liquidation value as a percentage of sales is higher for
SIC categories 2865 and 2869 under Finstat. These differences combine to
produce a higher ratio of liquidation value to baseline present value of cash
flow for SIC categories 2865 and 2869, as compared to SIC categories 2821,
2823, and 2824 under Finstat. Plants in SIC 2865 and 2869 are therefore more
likely to close, other things being equal. Table A8-5 demonstrates this
observation, where the number of closure candidates is presented by regulatory
option and subcategory. The first data column shows results using Robert
Morris data while the second column shows results using Finstat data. Most of
the additional closures using the Finstat data appear in the four organics
subcategories (Organics Part A, Bulk, Commodity, and Specialty). For the BPT
Option II regulation, 29 of the 32 additional closures occur in organics
subcategories. For BAT Option II and BAT Option III, 25 of 31 and 28 of 45
additional closures occur in organics subcategories, respectively. For PSES
Option III, 72 of the 82 additional closures occur in the organics
subcategories.
*0ne of the reasons is that the sum of the ratios of fixed and current
assets to total assets is less under Finstat than Robert Morris. (By
definition the sum should equal 100%. Because medians for these ratios were
selected from different years, the sums are less than 100%). The sum of the
two ratios under Finstat ranges from 83 percent to 92.7 percent, while the
Robert Morris sums are consistently between 92 and 93 percent. EPA plans to
establish a method to ensure that all sums total 100 percent.
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8A-5
Table A8-3. Comparison of Finstat with Robert Morris.
Liquidation Value and Baseline Present Value of Cash Flow.
All Plants.
SIC Code
Liquidation Value
as % of sales
Baseline present
value of cash flow
as % of sales
Ratio of liquidation
value to present
value of cash flow
Finstat
2821 2823 2824 2865 2869
18.8 18.8 23.7 20.6 24.6
39.5 53.0 27.8 24.2 31.1
.476 .405 .854 .853 .790
Robert Morris
282- 286-
12.2 14.3
36.6 42.9
.333 .333
Sources: Robert Morris Assoc. (1976-82).
Finstat (1976-81), 1983 version.
Table A8-4. Comparison of Finstat with Robert Morris.
Liquidation Value and Baseline Present Value of Cash Flow.
Small Plants
SIC Code
Liquidation Value
as % of sales
------------ Finstat -------------
2821 2823 2824 2865 2869
19.8 20.5 24.6 17.0 21.8
Baseline present
value of cash flow
as % of sales 45.6 57.7 25.8 39.7 37.9
Ratio of liquidation
value to present
value of cash flow
.435 .355 .953 .428 .575
Robert Morris
282- 286-
10.4 11.2
31.3 28.8
.332 .389
Sources: Robert Morris (1976-82).
Finstat (1976-81), 1983 version.
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